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Retail Markups and Discount Store Entry

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  • Chenarides, Lauren
  • Gomez, Miguel I.
  • Richards, Timothy J.
  • Yonezawa, Koichi

Abstract

“Hard discounters” are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471). We find that hard-discounter entry reduced markups for incumbment retailers by 7.3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability—despite the somewhat higher sales realized by incumbent retailers.
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Suggested Citation

  • Chenarides, Lauren & Gomez, Miguel I. & Richards, Timothy J. & Yonezawa, Koichi, 2021. "Retail Markups and Discount Store Entry," 2021 Annual Meeting, August 1-3, Austin, Texas 313348, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea21:313348
    DOI: 10.22004/ag.econ.313348
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    Marketing; Agribusiness; Production Economics;
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