A Contemporary Policy-Making Perspective Concerning Supermarket Pricing and Quality

Abstract

This manuscript presents a methodology from which supermarket management who, faced with competition, must provide recommendations for profit-maximizing price, quality, and capacity. It is assumed that service quality and price impact jointly on demand for service, and that both demand and service quality impact on the costs of providing service. A service quality constraint is applied to the mathematical optimization model in order to guarantee that recommended optimal service standards are met. We generate conditions that characterize optimal solutions and provide illustrative results based on empirical data obtained from a supermarket study.