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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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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. 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.
  3. Guimarães, Bernardo & Sheedy, Kevin D., 2008. "Sales and Monetary Policy," CEPR Discussion Papers 6940, C.E.P.R. Discussion Papers.
  4. Neumark, David & Zhang, Junfu & Ciccarella, Stephen, 2007. "The Effects of Wal-Mart on Local Labor Markets," IZA Discussion Papers 2545, Institute for the Study of Labor (IZA).
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  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Jeffrey R. Campbell & Benjamin Eden, 2005. "Rigid prices: evidence from U.S. scanner data," Working Paper Series WP-05-08, Federal Reserve Bank of Chicago.
  13. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  14. Rajiv Lal, 1990. "Price Promotions: Limiting Competitive Encroachment," Marketing Science, INFORMS, vol. 9(3), pages 247-262.
  15. 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.
  16. Dube, Arindrajit & Lester, T. William & Eidlin, Barry, 2007. "Firm Entry and Wages: Impact of Wal-Mart Growth on Earnings Throughout the Retail Sector," Institute for Research on Labor and Employment, Working Paper Series qt22s5k4pv, Institute of Industrial Relations, UC Berkeley.
  17. Capps, Oral, Jr. & Griffin, James M., 1998. "Effect Of A Mass Merchandiser On Traditional Food Retailers," Journal of Food Distribution Research, Food Distribution Research Society, vol. 29(1), February.
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