Empirical Tests for Predatory Reputation

Abstract

In earlier studies of the supermarket industry in Edmonton, Alberta (Von Hohenbalken and West, 1984, and West and Von Hohenbalken, 1984), tests were made for predation in a spatial setting and evidence was found supporting the predation hypothesis. The present analysis uses data on locations, entry, exit, and market area populations of supermarkets in Edmonton to test whether the entry deterrence and timing-of-expansion implications of the reputation hypothesis are confirmed. The hypothesized reputation period is 1968-1982. Six major firms and a number of smaller firms satisfied the supermarket criteria. Canada Safeway, a subsidiary of the US-based Safeway Stores Inc., was the dominant supermarket in western Canada during the study period, followed by IGA, Loblaws, Dominion Stores, Tom Boy, and Woodward's. Analysis indicates that the time-series data are consistent with entry being deterred and with delayed opening of new supermarkets by the dominant established firm.