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Entry of Wal-Mart Supercenters and Supermarkets' Profit Margins

Author

Listed:
  • Rigoberto A. Lopez

    (Department of Agriculture and Resource Economics, University of Connecticut)

  • Xiaoou Liu

Abstract

This article quantifies the impact of Wal-Mart Supercenters on supermarkets’ profitability via a two-stage dynamic entry game, using method of simulated moments and milk scanner data from Dallas/Fort Worth supermarkets. The empirical findings show that the entry of Wal-Mart Supercenters accounts for about an average 50% decrease in milk profit margins for incumbent supermarkets. Effects of scale are found to be more significant for Wal-Mart Supercenters than for incumbent supermarkets, granting Wal-Mart a competitive edge.

Suggested Citation

  • Rigoberto A. Lopez & Xiaoou Liu, 2011. "Entry of Wal-Mart Supercenters and Supermarkets' Profit Margins," Working Papers 3, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    • Handle: RePEc:zwi:wpaper:3
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    File URL: http://www.are.uconn.edu/RePEc/zwi/wpaper/walmart.pdf
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    Keywords

    Wal-Mart; entry; profit margins; milk; dynamic games;
    All these keywords.

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