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Consumer benefits from increased competition in shopping outlets: Measuring the effect of Wal-Mart

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Author Info
Jerry Hausman (MIT, Cambridge, Massachusetts, USA)
Ephraim Leibtag (Economic Research Service, US Department of Agriculture, Washington, DC, USA)
Abstract

Non-traditional retail outlets, including supercenters, warehouse club stores, and mass merchandisers, have nearly doubled their share of consumer food-at-home expenditures in the U.S. from 1998 to 2003. Wal-Mart supercenters have had the biggest impact on food retailing as they compete most closely with traditional supermarkets and offer many identical food items at an average price about 15%-25% lower than traditional supermarkets. We consider consumer benefits from this market share growth and estimate the effect on consumer welfare of entry and expansion into new geographic markets. We calculate the compensating variation that arises from both the direct variety effect of the entry of supercenters and the indirect price effect that arises from the increased competition that supercenters create and find the average effect of the total compensating variation to be 25% of food expenditures. Since we find that lower income households tend to shop more at these lower priced outlets, a significant decrease in consumer surplus arises from restricting entry and expansion of supercenters into new geographic markets. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.994
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File URL: http://qed.econ.queensu.ca:80/jae/2007-v22.7/
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 7 ()
Pages: 1157-1177
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Handle: RePEc:jae:japmet:v:22:y:2007:i:7:p:1157-1177

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Harvey S. Rosen & Kenneth A. Small, 1981. "Applied Welfare Economics with Discrete Choice Models," NBER Working Papers 0319, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Jerry Hausman & Ephraim Leibtag, 2004. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Working Papers 10712, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Beggs, S. & Cardell, S. & Hausman, J., 1981. "Assessing the potential demand for electric cars," Journal of Econometrics, Elsevier, vol. 17(1), pages 1-19, September. [Downloadable!] (restricted)
  4. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-82, November. [Downloadable!] (restricted)
  5. Hausman, Jerry A. & Leonard, Gregory K. & McFadden, Daniel, 1995. "A utility-consistent, combined discrete choice and count data model Assessing recreational use losses due to natural resource damage," Journal of Public Economics, Elsevier, vol. 56(1), pages 1-30, January. [Downloadable!] (restricted)
  6. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-76, November. [Downloadable!] (restricted)
  7. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  8. Hausman, Jerry A & Leonard, Gregory K, 2002. "The Competitive Effects of a New Product Introduction: A Case Study," Journal of Industrial Economics, Blackwell Publishing, vol. 50(3), pages 237-63, September. [Downloadable!] (restricted)
  9. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February. [Downloadable!] (restricted)
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  10. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September. [Downloadable!] (restricted)
  11. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May. [Downloadable!] (restricted)
  12. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November. [Downloadable!] (restricted)
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  1. Cleeren, Kathleen & Dekimpe, Marnik G. & Gielens, Katrijn & Verboven, Frank, 2008. "Intra- and Inter-Format Competition Among Discounters and Supermarkets," CEPR Discussion Papers 6964, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Liran Einav & Ephraim Leibtag & Aviv Nevo, 2008. "Not-so-Classical Measurement Errors: A Validation Study of Homescan," NBER Working Papers 14436, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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