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Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices

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  • Courtemanche, Charles

    ()
    (University of North Carolina at Greensboro, Department of Economics)

  • Carden, Art

    ()
    (University of North Carolina at Greensboro, Department of Economics)

Abstract

Research shows that grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam's Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.

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Bibliographic Info

Paper provided by University of North Carolina at Greensboro, Department of Economics in its series Working Papers with number 11-7.

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Length: 47 pages
Date of creation: 28 Feb 2011
Date of revision:
Handle: RePEc:ris:uncgec:2011_007

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Web page: http://www.uncg.edu/bae/econ/
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Keywords: Wal-Mart; Walmart; Costco; Sam’s Club; warehouse clubs; grocery prices; competition; retail;

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References

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  1. Art Carden & Charles Courtemanche, 2009. "Wal-Mart, Leisure, And Culture," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 27(4), pages 450-461, October.
  2. Emek Basker, 2004. "Selling a Cheaper Mousetrap: Wal-Marts Effect on Retail Prices," Working Papers, Department of Economics, University of Missouri 0401, Department of Economics, University of Missouri, revised 16 Mar 2004.
  3. 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).
  4. 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, Wiley Blackwell, vol. 18(4), pages 977-1009, December.
  5. Richard J. Volpe & Nathalie Lavoie, 2008. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Review of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 30(1), pages 4-26.
  6. Emek Basker, 2003. "Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion," Labor and Demography, EconWPA 0303002, EconWPA, revised 11 Mar 2005.
  7. 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., John Wiley & Sons, Ltd., vol. 22(7), pages 1157-1177.
  8. Carden, Art & Courtemanche, Charles & Meiners, Jeremy, 2008. "Painting the Town Red? Wal-Mart and Values," Working Papers, University of North Carolina at Greensboro, Department of Economics 09-5, University of North Carolina at Greensboro, Department of Economics, revised 01 Apr 2009.
  9. Stephan J. Goetz & Anil Rupasingha, 2006. "Wal-Mart and Social Capital," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 88(5), pages 1304-1310.
  10. Ellickson, Paul B., 2006. "Quality competition in retailing: A structural analysis," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(3), pages 521-540, May.
  11. Courtemanche, Charles & Carden, Art, 2008. "Supersizing Supercenters? The Impact of Wal-Mart Supercenters on Body Mass Index and Obesity," Working Papers, University of North Carolina at Greensboro, Department of Economics 09-3, University of North Carolina at Greensboro, Department of Economics, revised 29 Jan 2009.
  12. Art Carden & Charles Courtemanche & Jeremy Meiners, 2009. "Does Wal-Mart reduce social capital?," Public Choice, Springer, Springer, vol. 138(1), pages 109-136, January.
  13. 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, Institute of Industrial Relations, UC Berkeley qt22s5k4pv, Institute of Industrial Relations, UC Berkeley.
  14. Jerry Hausman & Ephraim Leibtag, 2009. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Chapters, National Bureau of Economic Research, Inc, in: Price Index Concepts and Measurement, pages 203-231 National Bureau of Economic Research, Inc.
  15. Paul B. Ellickson, 2007. "Does Sutton apply to supermarkets?," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 38(1), pages 43-59, 03.
  16. Ellickson, Paul, 2005. "Does Sutton Apply to Supermarkets?," Working Papers, Duke University, Department of Economics 05-05, Duke University, Department of Economics.
  17. Russell S. Sobel & Andrea M Dean, 2008. "Has Wal-Mart Buried Mom And Pop?: The Impact Of Wal-Mart On Self-Employment And Small Establishments In The United States," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 46(4), pages 676-695, October.
  18. Emek Basker, 2007. "When Good Instruments Go Bad," Working Papers, Department of Economics, University of Missouri 0706, Department of Economics, University of Missouri.
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Cited by:
  1. Emek Basker, 2013. "Change at the Checkout: Tracing the Impact of a Process Innovation," Working Papers, Department of Economics, University of Missouri 1302, Department of Economics, University of Missouri.

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