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The Evolving Food Chain: Competitive Effects of Wal-Marts Entry into the Supermarket Industry

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Author Info
Emek Basker () (Department of Economics, University of Missouri-Columbia)
Michael Noel

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Abstract

We analyze the effect of Wal-Marts entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Marts entry on competitors prices of 24 grocery items across several categories. Wal-Marts price advantage over competitors for these products averages approximately 10%. On average, competitors response to Wal-Marts entry is a price reduction of 11.2%, mostly due to smaller-scale competitors: the response of the big three supermarket chains (Albertsons, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Marts effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.

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File URL: http://economics.missouri.edu/working-papers/2007/WP0712_basker.pdf
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Publisher Info
Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 0712.

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Length: 32 pgs.
Date of creation: 15 Jun 2007
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Handle: RePEc:umc:wpaper:0712

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Web page: http://economics.missouri.edu/
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Related research
Keywords: Wal-Mart Retail Prices Supermarkets Price Competition

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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References listed on IDEAS
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  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!] (restricted)
    Other versions:
  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)
    Other versions:
  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.
    Other versions:
  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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