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Sales and Firm Entry: The Case of Wal-Mart

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Abstract

Temporary price reductions or “sales†have become increasingly important in the evolution of the price level. We present a model of repeated price competition to illustrate how entry causes incumbents to alternate between high and low prices. Using a six year panel of weekly observations from a grocery chain, we find that individual stores employ more sales as the distance to Wal-Mart falls. Moreover, the increase in the frequency of sales was concentrated on the most popular products, suggesting the use of a loss-leader strategy.

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File URL: http://commons.colgate.edu/cgi/viewcontent.cgi?article=1034&context=econ_facschol
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Bibliographic Info

Paper provided by Department of Economics, Colgate University in its series Working Papers with number 2012-03.

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Date of creation: 2012
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Handle: RePEc:cgt:wpaper:2012-03

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Keywords: Wal-Mart; Retail Prices; Price Competition; Temporary Sales Prices;

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  1. Patrick J. Kehoe & Virgiliu Midrigan, 2010. "Prices are Sticky After All," NBER Working Papers 16364, National Bureau of Economic Research, Inc.
  2. Kevin Sheedy & Bernardo Guimaraes, 2009. "Sales and Monetary Policy," 2009 Meeting Papers 365, Society for Economic Dynamics.
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  8. Ben Eden & Jeff Campbell, 2004. "Rigid Prices: Evidence from US scanner data," 2004 Meeting Papers 461, Society for Economic Dynamics.
  9. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
  10. DeGraba, Patrick, 2006. "The loss leader is a turkey: Targeted discounts from multi-product competitors," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 613-628, May.
  11. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
  12. Benjamin Eden & Matthew Jaremski, 2009. "Rigidity, Dispersion and Discreteness in Chain Prices," Vanderbilt University Department of Economics Working Papers 0903, Vanderbilt University Department of Economics.
  13. Andrew W. Franklin, 2001. "The impact of Wal-Mart supercenters on supermarket concentration in U.S. metropolitan areas," Agribusiness, John Wiley & Sons, Ltd., vol. 17(1), pages 105-114.
  14. Daniel Hosken & David Reiffen, 2004. "How Retailers Determine Which Products Should Go on Sale: Evidence From Store-Level Data," Journal of Consumer Policy, Springer, vol. 27(2), pages 141-177, June.
  15. Rajiv Lal, 1990. "Price Promotions: Limiting Competitive Encroachment," Marketing Science, INFORMS, vol. 9(3), pages 247-262.
  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.
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