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Comments on: Warehouse Extra is Gone! http://www.tvhe.co.nz/2008/10/09/warehouse-extra-is-gone/ The Visible Hand in Economics Mon, 21 Dec 2015 22:38:59 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: agnitio http://www.tvhe.co.nz/2008/10/09/warehouse-extra-is-gone/#comment-2709 Thu, 09 Oct 2008 00:44:48 +0000 http://tvhe.wordpress.com/?p=1463#comment-2709 Agreed, however the threat has to be credible for it to constrain the behaviour of the merged entity. On my reading (which may be incorrect, I’m not a lawyer!) the court of appeal decision effectively blocked the merger based upon the “possibility” that extra might be succesfull, not because it was currently a constraint or they thought it defnitely would be a constraint.

My guess is that a failed attempt at entry would be unlikely to deter the supermarkets from raising prices.

How big a price hike would it take to entice extra to re-enter? who knows. If it’s more then 5% (i.e doesn’t satisfy the SSNIP test) then economically it is unlikely to be a constraint. It would be interesting to see a time series of grocery prices to see if the extra imposed any meaningful constraint on the supermarkets when it announced the extra format. Presumeably if the supermarkets were worried they would have lowered prices.

Also, I don’t think extra would be much of a constraint if it did succesfully enter. They would still focus on general goods and would be at a cost disadvantage for groceries.

If another international grocery chain bought the warehouse that would be a different story all together since that would put it on an even footing cost wise for groceries, but this just begs the question of why another grocery chain hasn’t joined the bidding?

]]> By: Steve http://www.tvhe.co.nz/2008/10/09/warehouse-extra-is-gone/#comment-2708 Thu, 09 Oct 2008 00:26:51 +0000 http://tvhe.wordpress.com/?p=1463#comment-2708 But the counterfactual still contains the “threat of competition”, if that threat were removed by a takeover, the existing supermarkets could increase prices knowing that no one could enter. At least with the Warehouse being owned separately, the supermarkets can’t raise prices too high because this would encourage entry from the warehouse extra.

While there is no business case at the moment for the warehouse extra so they are phasing out the stores, with higher prices there may be a business case, and the warehouse extra could re-enter.

While not as strong as before this is still enough of a counterfactual to support the Commission’s case.

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