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The rank tests for nonlinear cointegration: Examining the price competition between the two supermarket giants in Hong Kong
Author(s)
Date Issued
2019
Citation
Wong, F. K., Lee, S. K., & Woo, K. Y. (18 Jul 2019). The rank tests for nonlinear cointegration: Examining the price competition between the two supermarket giants in Hong Kong. International Conference: Theoretical and Applied Econometrics, Hong Kong Shue Yan University, Hong Kong.
Type
Conference Paper
Abstract
The grocery industry in Hong Kong has increased its concentration over the last two decades. High concentration may give rise to market power, which in turn causes anti-competitive behaviour and high grocery prices that lower the standard of living among consumers in Hong Kong, especially those in low-income households. The growing dominance of supermarket chains has therefore brought public concern over exploitation of market power in the HK retail grocery industry. Using cointegration analysis, this paper examines the price convergence and competition of grocery products between the two largest supermarket
giants in Hong Kong, Wellcome and ParknShop. Since the cointegrating relationship between supermarket prices may not be exact or linear, we adopt the non-parametric rank tests for analysis which do not require
prior knowledge and specification of the linear or nonlinear functional form. The results confirm the existence of price convergence and competition. Also, there is some evidence of nonlinear cointegration
relationships between supermarket prices, which may be caused by transaction costs, nonlinear price interaction behaviors, and game theoretic strategies.
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