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Consumer benefits from increased competition in shopping outlets: Measuring the effect of Wal-Mart

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  • Jerry Hausman

    (MIT, Cambridge, Massachusetts, USA)

  • Ephraim Leibtag

    (Economic Research Service, US Department of Agriculture, Washington, DC, USA)

Abstract

Non-traditional retail outlets, including supercenters, warehouse club stores, and mass merchandisers, have nearly doubled their share of consumer food-at-home expenditures in the U.S. from 1998 to 2003. Wal-Mart supercenters have had the biggest impact on food retailing as they compete most closely with traditional supermarkets and offer many identical food items at an average price about 15%-25% lower than traditional supermarkets. We consider consumer benefits from this market share growth and estimate the effect on consumer welfare of entry and expansion into new geographic markets. We calculate the compensating variation that arises from both the direct variety effect of the entry of supercenters and the indirect price effect that arises from the increased competition that supercenters create and find the average effect of the total compensating variation to be 25% of food expenditures. Since we find that lower income households tend to shop more at these lower priced outlets, a significant decrease in consumer surplus arises from restricting entry and expansion of supercenters into new geographic markets. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • 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., vol. 22(7), pages 1157-1177.
  • Handle: RePEc:jae:japmet:v:22:y:2007:i:7:p:1157-1177
    DOI: 10.1002/jae.994
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    References listed on IDEAS

    as
    1. Hausman, Jerry A, 1985. "The Econometrics of Nonlinear Budget Sets," Econometrica, Econometric Society, vol. 53(6), pages 1255-1282, November.
    2. Hausman, Jerry A. & Leonard, Gregory K. & McFadden, Daniel, 1995. "A utility-consistent, combined discrete choice and count data model Assessing recreational use losses due to natural resource damage," Journal of Public Economics, Elsevier, vol. 56(1), pages 1-30, January.
    3. Hausman, Jerry A & Leonard, Gregory K, 2002. "The Competitive Effects of a New Product Introduction: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 237-263, September.
    4. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    5. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-130, January.
    6. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-1476, November.
    7. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    8. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    9. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, December.
    10. Jerry Hausman & Ephraim Leibtag, 2009. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Chapters, in: Price Index Concepts and Measurement, pages 203-231, National Bureau of Economic Research, Inc.
    11. Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-194, April.
    12. Beggs, S. & Cardell, S. & Hausman, J., 1981. "Assessing the potential demand for electric cars," Journal of Econometrics, Elsevier, vol. 17(1), pages 1-19, September.
    13. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
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    More about this item

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics

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