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The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry Into The Supermarket Industry

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Author Info
Michael Noel (Department of Economics, University of California - San Diego)
Emek Basker (University of Missouri)

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Abstract

We analyze the effect of Wal-Mart's entry into the grocery market using a unique stor-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Mart's entry on competitors' prices of 24 grocery items across several categories. Wal-Mart's price advantage over competitors for these products averages approximately 10%. On average, competitors' response to Wal-Mart's entry is a price reduction of 1-1.2%, mostly due to smaller-scale competitors: the response of the "big three" supermarket chains (Alberson's, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Mart's effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 2007-03.

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Date of creation: 01 Jun 2007
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Handle: RePEc:cdl:ucsdec:2007-03

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Related research
Keywords: Wal-Mart; Retail Prices; Supermarkets; Price Competition;

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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. 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)
  2. Judith A. Chevalier & Anil K Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, vol. 93(1), pages 15-37, March. [Downloadable!]
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  3. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1211-36, November. [Downloadable!] (restricted)
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  4. Levy, Daniel, et al, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 791-825, August.
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  5. Thomas J. Holmes, 2006. "The Diffusion of Wal-Mart and Economies of Density," 2006 Meeting Papers 15, Society for Economic Dynamics.
  6. Ting Zhu & Vishal Singh & Anthony J. Dukes, 2005. "Local Competition and Impact of Entry by a Dominant Retailer," CIE Discussion Papers 2005-05, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  7. Frankel, David M. & Gould, Eric D., 2001. "The Retail Price of Inequality," Journal of Urban Economics, Elsevier, vol. 49(2), pages 219-239, March. [Downloadable!] (restricted)
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  8. Thomas J. Holmes, 2008. "The Diffusion of Wal-Mart and Economies of Density," NBER Working Papers 13783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Emek Basker & Shawn Klimek & Pham Hoang Van, 2008. "Supersize It: The Growth of Retail Chains and the Rise of the "Big Box" Retail Format," Working Papers 0809, Department of Economics, University of Missouri. [Downloadable!]
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  2. Emek Basker, 2008. "Does Wal-Mart Sell Inferior Goods?," Working Papers 0805, Department of Economics, University of Missouri. [Downloadable!]
  3. Bonanno, Alessandro & Lopez, Rigoberto A., 2008. "Wal-Mart’s Monopsony Power in Local Labor Markets," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6219, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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