Doctor of Economics, Associate Professor at the Economic Theory and Competition Policy Department Kyiv National University of Trade and Economics
TRADE SERVICE SUBSTITUTABILITY STUDY USING LANCASTER MODEL
Background. The expansion of supermarkets and other modern retail formats in Ukraine raised the relevant question of their services substitutability with the services of traditional retailers.
Review of scientific sources. There are two opposite scientific approaches to the substitutability of their services: an approach of substitutability and complementarity approach.
Aim of the research is to clarify the mechanism of interdependence of consumption of different groups of trade services with the use of Lancaster Model, as well as to find out the role of the price factor in changing the degree of their substitutability, thereby forming the theoretical basis for the synthesis of the above mentioned approaches.
Materials and methods. Results of the microeconomic modeling done by Lancaster and his followers of consumer’s economic choice when there are numerous goods-substitutes were used to achieve the above goal. Dependence mechanism of consumption of different trade services was studied using graphic models and their microeconomic analysis.
Results. Trade service is not unitary. It is described by a set of consumer characteristics: product quality, comprehensiveness of product range, additional services and more. Setting them as coordinates in the spatial Lancaster Model let us allocate trade services of different retailers as the potential substitutes. Adding the income and price factors to the model creates a budget line. If allocated services are the elements of the same budget line, they are substitutes.
Conclusion. Within the limits of its own competitive advantages each set of trade services provided by the relevant type of retailers creates a market power zone, within which these services have no close substitutes, and the retailer is able to manage the price / trade margin. Income or price change switches on the substitution effect, increasing / decreasing the substitutability of trade services. So the opposed approaches are the elements of a single concept of consumer behavior in conditions of limited substitutability of goods / services without restrictions on the sustainability of prices and incomes.
Keywords: trade services, substitutability, consumer characteristics, substitution effect, Lancaster Model.
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