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Entry of Wal-Mart Supercenters and Supermarkets’ Profit Margins

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  • Liu, Xiaoou
  • Lopez, Rigoberto

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

  • Liu, Xiaoou & Lopez, Rigoberto, 2011. "Entry of Wal-Mart Supercenters and Supermarkets’ Profit Margins," Working Paper series 148291, University of Connecticut, Charles J. Zwick Center for Food and Resource Policy.
    • Handle: RePEc:ags:ucozwp:148291
    DOI: 10.22004/ag.econ.148291
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    1. 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.
    2. 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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    4. 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.
    5. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    6. 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.
    7. Georgeanne M. Artz & Kenneth E. Stone, 2006. "Analyzing the Impact of Wal-Mart Supercenters on Local Food Store Sales," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(5), pages 1296-1303.
    8. 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.
    9. 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.
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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

    Community/Rural/Urban Development;

    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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