Feb 22, 2009

Cheap Chow

Does it matter for your wallet in which super market you do your shopping?

You may be excused to answer yes to this question even if you are an economist. Admittedly, this is a bit stretching the argument. But in Germany the discounter market (which hit the news recently with rather negative news) is such that no matter where you go shopping the difference in the overall cost of a basket of so called “Eckartikel” (brand products with low prices that are bought with high frequency: e.g. milk, shampoo or coffee) is around 1%.

Does this imply that the German discount market is highly competitive?

Again you my be excused to answer yes to this question unless you are German. Well compared to the Swiss market it seems competitive. How can it be that prices are identical and probably the lowest in Europe and still the market structure is not competitive. Tricky question. My best guess is that it is due to the big market leader and price setter ALDI (founded and still owned by two of Germany’s richest and media shyest brothers). For ALDI to be in the position of setting the price, it must have some monopsony power in buying the products for resale, which is certainly true for ALDI.

But why does ALDI then not set prices such that others have to exit the market. I guess it has to do with location and the transaction cost of driving/walking to the next closest ALDI. But then again ALDI could try to locate better. Hence, there must be some reason to keep “competitors”.

If you are keen on shopping cheap and do not mind the hassle of going to different stores and you life in Germany, here is where you can find the currently cheapest products: Preszeiger (only avaiable in German).

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