Evaluating food retailers using dual elasticities of substitution

Dual elasticities of substitution from a distance function model of the food retailing establishment are developed based on multiple performance measures integrated with store characteristics, staffing decisions, and employee benefits and incentives. The impacts of organizational and competitive conditions such as store format, membership in a self-distributing chain, and the presence of a supercenter on store management decisions are evaluated. Technical substitution relationships implied by the dual Morishima elasticities confirm that moderate changes in relative shadow factor prices are associated with input adjustments in retail operations, implying that the costs of adjusting input allocations are small. Both value added and service offerings decline in the presence of a supercenter, with food retailers relying on price adjustments as a primary strategy.