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Wal-Mart and the geography of grocery retailing

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  • Ellickson, Paul B.
  • Grieco, Paul L.E.
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    Abstract

    This paper empirically examines the impact of entry by Wal-Mart on competition in the supermarket industry. Using a detailed panel dataset spanning 1994–2006, we estimate the impact of Wal-Mart on firm outcomes and market structure, controlling for persistent local trends and systematic differences across markets by exploiting the detailed spatial structure of our store-level census. We find that Wal-Mart’s impact is highly localized, affecting firms only within a tight, two-mile radius of its location. Within this radius, the bulk of the impact falls on declining firms and mostly on the intensive margin. Entry of new firms is essentially unaffected. Moreover, the stores most damaged by Wal-Mart’s entry are the outlets of larger chains. This suggests that Wal-Mart’s expansion into groceries is quite distinct from its earlier experience in the discount industry, where the primary casualties were small chains and sole proprietorships that were forced to exit the market. This contrast sheds light on the role density economies play in shaping both equilibrium market structure and economic geography. In the case of grocery competition, high travel costs and the perishable nature of groceries appear to impart horizontal differentiation between firms. This differentiation in demand appears to reduce impact of scale economies advantages that Wal-Mart exploited to the detriment of far-flung competitors in the discount store industry.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Urban Economics.

    Volume (Year): 75 (2013)
    Issue (Month): C ()
    Pages: 1-14

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    Handle: RePEc:eee:juecon:v:75:y:2013:i:c:p:1-14

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    Web page: http://www.elsevier.com/locate/inca/622905

    Related research

    Keywords: Economic geography; Spatial competition; Retail trade; Supermarkets;

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    References

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    1. 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.
    2. Gautier, Pieter A & Zenou, Yves, 2008. "Car Ownership and the Labour Market of Ethnic Minorities," CEPR Discussion Papers 7061, C.E.P.R. Discussion Papers.
    3. Paul R. Messinger & Chakravarthi Narasimhan, 1995. "Has Power Shifted in the Grocery Channel?," Marketing Science, INFORMS, vol. 14(2), pages 189-223.
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    5. 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.
    6. Glaeser, Edward L. & Kahn, Matthew E. & Rappaport, Jordan, 2008. "Why do the poor live in cities The role of public transportation," Journal of Urban Economics, Elsevier, vol. 63(1), pages 1-24, January.
    7. Jerry Hausman & Ephraim Leibtag, 2006. "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart," CeMMAP working papers CWP06/06, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    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. John Haltiwanger & Ron Jarmin & C.J. Krizan, 2009. "Mom-and-Pop Meet Big-Box: Complements or Substitutes?," Working Papers 09-34, Center for Economic Studies, U.S. Census Bureau.
    10. Ting Zhu & Vishal Singh, 2009. "Spatial competition with endogenous location choices: An application to discount retailing," Quantitative Marketing and Economics, Springer, vol. 7(1), pages 1-35, March.
    11. David A. Matsa, 2011. "Competition and Product Quality in the Supermarket Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1539-1591.
    12. Baum, Charles L., 2009. "The effects of vehicle ownership on employment," Journal of Urban Economics, Elsevier, vol. 66(3), pages 151-163, November.
    13. Thomas J. Holmes, 2011. "The Diffusion of Wal‐Mart and Economies of Density," Econometrica, Econometric Society, vol. 79(1), pages 253-302, 01.
    14. John C. Haltiwanger & Ron S. Jarmin & C. J. Krizan, 2009. "Mom-and-Pop Meet Big-Box: Complements or Substitutes?," NBER Working Papers 15348, National Bureau of Economic Research, Inc.
    15. Douglas J. Besharov & Marianne Bitler & Steven J. Haider, 2011. "An economic view of food deserts in the united states," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(1), pages 153-176, December.
    16. 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.
    17. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
    18. Holmes, Thomas J, 2001. "Bar Codes Lead to Frequent Deliveries and Superstores," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 708-25, Winter.
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    Cited by:
    1. Peter Arcidiacono & Patrick Bayer & Jason R. Blevins & Paul B. Ellickson, 2012. "Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition," NBER Working Papers 18449, National Bureau of Economic Research, Inc.

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