"Policy Shift Needed from Regulating Large Marts to Direct Support for Traditional Markets"

Among 32 products, 26 do not have price competition between large marts and small supermarkets

[Asia Economy Reporter Park Sun-mi] A suggestion has been made that, due to the low level of price competition between large discount stores and small supermarkets for the same products, policy should shift from regulating large discount stores to directly supporting traditional markets and small distribution businesses.

On the 21st, the Korea Economic Research Institute, through a report titled "Competitive Relationship Between Large Discount Stores and Small Supermarkets: The Case of Seoul," commissioned to Professor Jeong Hoi-sang of Kangwon National University, revealed that the degree of competition between products sold at large discount stores and those sold at small supermarkets is low.

The report analyzed the competitive relationships among distribution businesses using price data of 32 products sold at distribution businesses located in Seoul from January to December 2021 and a spatial autoregressive model. It examined whether there was a competitive relationship between large discount stores and large discount stores, small supermarkets and small supermarkets, and large discount stores and small supermarkets by checking if a price increase or decrease of a specific product at a neighboring distribution business led to any price response at a particular distribution business.

As a result of the analysis, among the 32 products, 24 showed that large discount stores compete with other large discount stores, and small supermarkets compete with other small supermarkets in terms of price. This means that these 24 products are substitutes among distribution businesses of the same scale.

On the other hand, for 26 of the 32 products, it was analyzed that large discount stores and small supermarkets are not in a competitive relationship. For example, even if a large discount store near a specific small supermarket raises or lowers the price of product A ramen, the small supermarket does not respond, indicating they are independent goods.

Regarding this, Professor Jeong explained, "Consumers view large discount stores and small supermarkets as providers of different distribution services depending on the timing, purpose, or quantity of purchasing daily necessities," adding, "Large discount stores target consumers who occasionally buy in bulk, while small supermarkets target consumers who frequently buy in small quantities, so they face different markets."

Professor Jeong pointed out, "The large distribution business operation regulations introduced in 2012 are based on the premise that large distribution businesses and small distribution businesses are in competition," and added, "If the degree of competition between large distribution businesses and small distribution businesses is low, the effectiveness of regulations on large distribution businesses to protect small distribution businesses will be very low." He also noted that such regulations risk infringing on the operational freedom of large distribution businesses and consumers' choice.

Professor Jeong emphasized that no country regulates the operations of large discount stores and corporate supermarkets (SSMs) to protect small distribution businesses like South Korea does, and highlighted that in recent OECD countries, deregulation or easing of entry and operating hours for large distribution businesses has led to increased sales, employment, and consumer welfare. Furthermore, he added, "Policy direction should shift from indirect regulation of large distribution businesses to directly supporting traditional markets and small distribution businesses."

This content was produced with the assistance of AI translation services.