Consumer Behavior and Competition in Indian Retailing
Topic: Competition
Author: Mohammad Amin
This note argues that consumer behavior may be as important as firm behavior for the level of competition in consumer industries such as retailing. Using data on 1,948 retail stores in India, the note highlights three important findings. First, the number of nonworkers in the household, a proxy for the time costs of shopping, has a large effect on competition. Moving from the city with the least to the most number of nonworkers increases competition by 84 percent of its average level. Second, competition is higher in cities with lower incomes. However, this income- competition relationship disappears once we account for differences in the number of nonworkers across cities. The result casts doubt on the explanation of the negative income- competition relationship reported in the existing literature. Third, some of the popular beliefs on competition in Indian retailing do not find support in the data.