IDEAS home Printed from https://ideas.repec.org/p/umc/wpaper/0712.html
   My bibliography  Save this paper

The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry

Author

Abstract

We analyze the effect of Wal-Marts entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Marts entry on competitors prices of 24 grocery items across several categories. Wal-Marts price advantage over competitors for these products averages approximately 10%. On average, competitors response to Wal-Marts entry is a price reduction of 11.2%, mostly due to smaller-scale competitors: the response of the big three supermarket chains (Albertsons, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Marts effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.

Suggested Citation

  • Emek Basker & Michael Noel, 2007. "The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry," Working Papers 0712, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:0712
    as

    Download full text from publisher

    File URL: https://drive.google.com/file/d/12JJVOa6Z_kXmdzF2NsySpQkz1xUgfh-u/view?usp=sharing
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul B. Ellickson, 2007. "Does Sutton apply to supermarkets?," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 43-59, March.
    2. Emek Basker, 2007. "When Good Instruments Go Bad," Working Papers 0706, Department of Economics, University of Missouri.
    3. Emek Basker, 2005. "Job Creation or Destruction? Labor Market Effects of Wal-Mart Expansion," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 174-183, February.
    4. Levy, Daniel & Bergen, Mark & Dutta, Shantanu & Venable, Robert, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 112(3), pages 791-824.
    5. Frankel, David M. & Gould, Eric D., 2001. "The Retail Price of Inequality," Journal of Urban Economics, Elsevier, vol. 49(2), pages 219-239, March.
    6. Andrew W. Franklin, 2001. "The impact of Wal-Mart supercenters on supermarket concentration in U.S. metropolitan areas," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 105-114.
    7. Jerry Hausman & Ephraim Leibtag, 2007. "Consumer benefits from increased competition in shopping outlets: Measuring the effect of Wal-Mart," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1157-1177.
    8. Ellickson, Paul B., 2006. "Quality competition in retailing: A structural analysis," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 521-540, May.
    9. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(4), pages 1211-1236.
    10. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    11. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
    12. Ting Zhu & Vishal Singh & Anthony J. Dukes, 2005. "Local Competition and Impact of Entry by a Dominant Retailer," CIE Discussion Papers 2005-05, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    13. Vishal P. Singh & Karsten T. Hansen & Robert C. Blattberg, 2006. "Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter," Marketing Science, INFORMS, vol. 25(5), pages 457-476, September.
    14. Anthony J. Dukes & Tansev Geylani & Kannan Srinivasan, 2009. "Strategic Assortment Reduction by a Dominant Retailer," Marketing Science, INFORMS, vol. 28(2), pages 309-319, 03-04.
    15. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, vol. 93(1), pages 15-37, March.
    16. Jerry Hausman & Ephraim Leibtag, 2009. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Chapters, in: Price Index Concepts and Measurement, pages 203-231, National Bureau of Economic Research, Inc.
    17. Ellickson, Paul, 2005. "Supermarkets as a Natural Oligopoly," Working Papers 05-04, Duke University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charles Courtemanche & Art Carden, 2014. "Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices," Southern Economic Journal, John Wiley & Sons, vol. 80(3), pages 565-585, January.
    2. Emek Basker, 2015. "Change at the Checkout: Tracing the Impact of a Process Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 63(2), pages 339-370, June.
    3. Rebecca Cleary & Jean-Paul Chavas, 2022. "Strategic supermarket pricing of private labels and manufacturer brands," Empirical Economics, Springer, vol. 62(6), pages 2921-2950, June.
    4. Basker, Emek, 2005. "Selling a cheaper mousetrap: Wal-Mart's effect on retail prices," Journal of Urban Economics, Elsevier, vol. 58(2), pages 203-229, September.
    5. Basker, Emek, 2011. "The Causes and Consequences of Wal-Mart’s Growth," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 110-134.
    6. Alessandro Bonanno & Stephan J. Goetz, 2012. "WalMart and Local Economic Development," Economic Development Quarterly, , vol. 26(4), pages 285-297, November.
    7. Fernando Borraz & Juan Dubra & Daniel Ferrés & Leandro Zipitría, 2014. "Supermarket Entry and the Survival of Small Stores," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(1), pages 73-93, February.
    8. Neumark, David & Zhang, Junfu & Ciccarella, Stephen, 2008. "The effects of Wal-Mart on local labor markets," Journal of Urban Economics, Elsevier, vol. 63(2), pages 405-430, March.
    9. Courtemanche, Charles & Carden, Art, 2011. "Supersizing supercenters? The impact of Walmart Supercenters on body mass index and obesity," Journal of Urban Economics, Elsevier, vol. 69(2), pages 165-181, March.
    10. Castellari Elena & Bonanno Alessandro & Sckokai Paolo, 2019. "Food Retail Liberalization, Food Retail Structure and Food Prices: The Italian Case," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 17(2), pages 1-11, November.
    11. Courtemanche, Charles & Carden, Art, 2009. "The skinny on big box retailing: Wal-Mart, warehouse clubs, and obesity," MPRA Paper 25326, University Library of Munich, Germany.
    12. Srikanth Paruchuri & Joel A. C. Baum & David Potere, 2009. "The Wal‐Mart Effect: Wave of Destruction or Creative Destruction?," Economic Geography, Clark University, vol. 85(2), pages 209-236, April.
    13. Mitsuru Igami, 2011. "Does Big Drive Out Small?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 1-21, January.
    14. Ellickson, Paul B. & Grieco, Paul L.E., 2013. "Wal-Mart and the geography of grocery retailing," Journal of Urban Economics, Elsevier, vol. 75(C), pages 1-14.
    15. Richard Volpe, 2014. "Supercenters, Unionized Labor, and Performance in Food Retail," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 53(2), pages 325-355, April.
    16. Bonanno, Alessandro & Lopez, Rigoberto A., 2012. "Wal-Mart's monopsony power in metro and non-metro labor markets," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 569-579.
    17. Bonanno, Alessandro, 2008. "An Empirical Investigation of Wal-Mart’s Expansion into Food Retailing," Research Reports 149931, University of Connecticut, Food Marketing Policy Center.
    18. Emek Basker & Shawn Klimek & Pham Hoang Van, 2012. "Supersize It: The Growth of Retail Chains and the Rise of the “Big‐Box” Store," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 541-582, September.
    19. Bonfrer, André & Chintagunta, Pradeep & Dhar, Sanjay, 2022. "Retail store formats, competition and shopper behavior: A Systematic review," Journal of Retailing, Elsevier, vol. 98(1), pages 71-91.
    20. Daniel Hanner & Daniel Hosken & Luke M. Olson & Loren K. Smith, 2015. "Dynamics in a Mature Industry: Entry, Exit, and Growth of Big‐Box Grocery Retailers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 22-46, March.

    More about this item

    Keywords

    Wal-Mart; Retail Prices; Supermarkets; Price Competition;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:0712. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chao Gu (email available below). General contact details of provider: https://edirc.repec.org/data/edumous.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.