The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry
"We analyze the effect of Wal-Mart's entry into the grocery market using a unique store-level price panel data set. We use ordinary least squares and two instrumental-variables specifications to estimate the effect of Wal-Mart's entry on competitors' prices of 24 grocery items across several categories. Wal-Mart's price advantage over competitors for these products averages approximately 10%. On average, competitors' response to entry by a Wal-Mart Supercenter is a price reduction of 1-1.2%, mostly due to smaller-scale competitors; the response of the "Big Three" supermarket chains (Albertson's, Safeway, and Kroger) is less than half that size. Low-end grocery stores, which compete more directly with Wal-Mart, cut their prices more than twice as much as higher-end stores. We confirm our results using a falsification exercise, in which we test for Wal-Mart's effect on prices of services that it does not provide, such as movie tickets and dry-cleaning services." Copyright (c) 2009, The Author(s) Journal Compilation (c) 2009 Wiley Periodicals, Inc..
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Volume (Year): 18 (2009)
Issue (Month): 4 (December)
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