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Entry of Wal-Mart Supercenters and Supermarkets’ Profit Margins

Author

Listed:
  • Xiaoou Liu

    (University of Connecticut)

  • Rigoberto A. Lopez

    (University of Connecticut)

Abstract

This article quantifies the impact of Wal-Mart Supercenters on supermarkets’ profitability via a two-stage dynamic entry game, using method of simulated moments and milk scanner data from Dallas/Fort Worth supermarkets. The empirical findings show that the entry of Wal-Mart Supercenters accounts for about an average 50% decrease in milk profit margins for incumbent supermarkets. Effects of scale are found to be more significant for Wal-Mart Supercenters than for incumbent supermarkets, granting Wal-Mart a competitive edge.

Suggested Citation

  • Xiaoou Liu & Rigoberto A. Lopez, 2011. "Entry of Wal-Mart Supercenters and Supermarkets’ Profit Margins," Working Papers 03, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    • Handle: RePEc:zwi:wpaper:03
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    References listed on IDEAS

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    1. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
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    5. Ronald W. Cotterill & Michael F. Brundage, 2001. "Competition, or the Lack Thereof in Local Fluid Milk Markets: San Francisco, Seattle, Chicago, Miami and Dallas-Forth Worth," Issue Papers 21, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    6. 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.
    7. Cotterill, Ronald & Brundage, Michael, 2001. "Competition, or the Lack Thereof in Local Fluid Milk Markets: San Francisco, Seattle, Chicago, Miami and Dallas-Forth Worth," Issue Papers 169377, University of Connecticut, Food Marketing Policy Center.
    8. Emek Basker & Michael Noel, 2009. "The Evolving Food Chain: Competitive Effects of Wal‐Mart's Entry into the Supermarket Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 977-1009, December.
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    Cited by:

    1. Bauner, Christoph & Wang, Emily, 2019. "The effect of competition on pricing and product positioning: Evidence from wholesale club entry," International Journal of Industrial Organization, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Wal-Mart; entry; profit margins; milk; dynamic games;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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