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Supermarket responses to Wal-Mart Supercenter expansion: a structural approach

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  • Rebecca Cleary
  • Rigoberto Lopez

Abstract

The impact of Wal-Mart in lowering incumbents’ retail prices has been well documented by previous studies using reduced form models. This article uses a structural model to examine the pricing behavior and promotion responses of incumbent supermarkets to a rapid expansion of Wal-Mart Supercenters (WMS) using the Dallas–Fort Worth milk market as a case study. Empirical results verify that WMS expansion disciplines incumbent supermarkets by decreasing oligopoly power and numbing consumer responsiveness to promotion. In addition, WMS expansion lures away price-sensitive consumers, leaving incumbent supermarkets to face more price-inelastic but lower demands for milk. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Rebecca Cleary & Rigoberto Lopez, 2014. "Supermarket responses to Wal-Mart Supercenter expansion: a structural approach," Empirical Economics, Springer, vol. 47(3), pages 905-925, November.
    • Handle: RePEc:spr:empeco:v:47:y:2014:i:3:p:905-925
    DOI: 10.1007/s00181-013-0767-5
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