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Selling a cheaper mousetrap: Wal-Mart's effect on retail prices

Listed author(s):
  • Basker, Emek

I quantify the price effect of a low-cost entrant on retail prices using a case-study approach. I consider the effect of Wal-Mart entry on average city-level prices of various consumer goods by exploiting variation in the timing of store entry. The analysis combines two unique data sets, one containing opening dates of all US Wal-Mart stores and the other containing average quarterly retail prices of severalnarrowly-defined commonly-purchased goods over the period 1982-2002. I focus on 10 specific items likely to be sold at Wal-Mart stores and analyze their price dynamics in 165 US cities before and after Wal-Mart entry. An instrumental-variables specification corrects for measurement error in Wal-Mart entry dates. I find robust price effects for several products, including shampoo, toothpaste, and laundry detergent; magnitudes vary by product and specification, but generally range from 1.5-3% in the short run and four times as much in the long-run.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 58 (2005)
Issue (Month): 2 (September)
Pages: 203-229

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Handle: RePEc:eee:juecon:v:58:y:2005:i:2:p:203-229
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. Thomas J. Kane & Cecilia Elena Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," NBER Working Papers 7235, National Bureau of Economic Research, Inc.
  2. David M. Frankel, 2000. "The Retail Price of Inequality," Econometric Society World Congress 2000 Contributed Papers 0577, Econometric Society.
  3. Emek Basker, 2002. "Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion," Working Papers 0215, Department of Economics, University of Missouri, revised Jan 2004.
  4. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  5. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
  6. Jeffrey R. Campbell & Hugo A. Hopenhayn, 2003. "Market size matters," Working Paper Series WP-03-12, Federal Reserve Bank of Chicago.
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  8. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  9. Emin M. Dinlersoz, 2004. "Firm Organization and the Structure of Retail Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 207-240, 06.
  10. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc.
  11. Joshua Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," NBER Working Papers 8456, National Bureau of Economic Research, Inc.
  12. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1211-1236.
  13. repec:pri:indrel:dsp01t435gc97f is not listed on IDEAS
  14. 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.
  15. Thomas J. Kane & Cecilia Rouse & Douglas Staiger, 1999. "Estimating Returns to Schooling When Schooling is Misreported," Working Papers 798, Princeton University, Department of Economics, Industrial Relations Section..
  16. repec:pri:indrel:dsp01vm40xr59g is not listed on IDEAS
  17. repec:fth:prinin:419 is not listed on IDEAS
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