Grocery Retailer Behavior in the Procurement and Sale of Perishable Fresh Produce

by Richard J. Sexton, Mingxia Zhang, and James A. Chalfant

This study examines retailer pricing behavior for iceberg lettuce shipped from California and Arizona, mature-green and vine-ripe tomatoes shipped from California and Florida, and lettuce-based fresh salads. A switching regression model is used to examine oligopsony power. Market power over consumers is inferred from selling price, selling and acquisition cost, and estimated price elasticities of demand. Evidence suggests buyers are often able to exercise oligopsony power in procuring fresh produce commodities. Unilateral monopoly power granted by geographic and brand differentiation allows retailers to exercise market power over consumers, in the sense of marking up prices in excess of full marginal costs.

This study was conducted by the University of California, Davis, under a cooperative research contract with USDA’s Economic Research Service. The views expressed are those of the authors and not necessarily those of ERSor USDA.

Keywords: Supermarket, grower-shippers, lettuce, bagged salads, tomatoes, market power, oligopsony, oligopoly, switching regression model, fresh produce

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