Title
Efficiency of the Retail Industry and Inelastic Supply
Authors
Abstract
We propose a method to measure the efficiency of the retail industry. In the caseof the manufacturing industry, we can define its efficiency by total factor productivity
(TFP) based on the production function. Since retailers do not produce specific objects,
we cannot observe their output with the exception of monetary observations such as sales
or profit. TFP could be computed as in the manufacturing industry using such data,
however, increased TFP does not necessarily indicate efficiency gain for retailers because
it also includes the effects from the demand side. If demand increases, the TFP of retailers
will increase. Therefore, we look at retailers’ cost function rather than production function
to study their efficiency. Assuming that the retail industry is competitive, we construct a
cost model and identify the cost efficiency. In standard economic theory, duality holds for
productivity and cost efficiency, though it is not clear in the present case. This paper deals
with the retailers of goods with an inelastic supply function which include agricultural and
marine products. We propose and apply a new empirical method to measure the retail
industry efficiency of agricultural products using Japanese regional panel data of wholesale
and market prices and traded quantity for a variety of vegetables from 2008 to 2014. The
marginal cost efficiency was stable during this period.
Keywords
Retail industry, Agricultural products, Cost function, Marginal cost efficiency, Prefectural level data
Classification-JEL
L81, D24, Q11
Pages
134-166