The groceries market seems alarmingly competitive to us

There are those trying to insist that significant parts of the American economy are uncompetitive. This allows the exercise of market power and thus excess or economic profits. True, this is the sort of analysis that comes from Senators Warren and Sanders so best not taken entirely seriously but there are also those we have to worry about like FTC chair Lina Khan.

Is there in fact some way we can test this?

Could be - back around the turn of the millennium there was considerable muttering that perhaps the UK groceries market was more than a little uncompetitive. Tesco was making net margins on sales of around 6% we seem to recall - around the highest in the world at that time for a supermarket chain. They’re now down around 3% and what’s changed is the irruption of the discounters, Aldi and Lidl, into the UK market.

There used to be very decent margins, price competition increases, margins are now lower. Yes, OK, it’s reasonable to think the earlier high margins were possibly a product of the absence of the price competition. Note that this is a market problem solved by the market, even if it’s still a problem.

But we can also use much the same logic the other way around:

Jeff Bezos had a golden rule for deciding whether Amazon should take the great leap from the internet to the high street. “We would love to [open physical stores], but only if we can have a truly differentiated idea,” he told an interviewer in 2012. “We want to do something that is uniquely Amazon.”

In the years since, the company has repeatedly tried to reinvent the supermarket. In 2016, it opened a till-free convenience store on the ground floor of its Seattle headquarters, using cameras and artificial intelligence to monitor what customers picked off shelves.

The following year, it paid $13.7bn (£11bn) for the upmarket grocer Whole Foods. And in 2020, it opened its own range of high-tech Amazon Fresh supermarkets in the US, before later expanding to Britain.

But despite the company becoming the world’s dominant internet retailer, Amazon’s near-decade of trying to reinvent the supermarket has stubbornly remained an ambition rather than a reality.

Amazon is not exactly a constrained competitor in the American groceries market, by either ambition or capital availability at least. Yet there seems to be no room in that marketplace for the extra competitor - or no room at some usefully profitable set of prices. From which a useful conclusion is that if it’s not possible to enter through greater efficiency or lower prices then the market as it is is efficient without excess or economic profits.

Which is an interesting finding, no? That there’s no room left for a competitor does rather mean that the current competition is sufficiently cutthroat. Not that we expect actual evidence to convince Senators but it’s nice to know all the same.