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The Effect of Wal-Mart Supercenters on Grocery Prices in New England

Author

Listed:
  • Richard J. Volpe III

    () (Department of Agricultural and Resource Economics, University of California at Davis)

  • Nathalie Lavoie

    () (Department of Resource Economics, University of Massachusetts Amherst)

Abstract

This study examines the competitive price effect of Wal-Mart Supercenters on national brand and private label grocery prices in New England. For this purpose, we use primary price data collected on a basket of identical products from six Supercenters in Massachusetts, Connecticut, and Rhode Island as well as a sample of conventional supermarkets. Taking into account demographics, store characteristics, and market conditions, we estimate the average prices charged by (1) Supercenters, (2) supermarkets competing directly with Supercenters, and by (3) supermarkets geographically distant from Supercenters. By comparing prices at competing stores and at distant stores, we show that the effect of Wal-Mart Supercenters is to decrease prices by 6 to 7 percent for national brand goods and 3 to 7 percent for private label goods. Price decreases are most significant in the dry grocery and dairy departments. Moreover, Wal-Mart sets prices significantly lower than its competitors in the food industry.

Suggested Citation

  • Richard J. Volpe III & Nathalie Lavoie, 2006. "The Effect of Wal-Mart Supercenters on Grocery Prices in New England," Working Papers 2006-8, University of Massachusetts Amherst, Department of Resource Economics.
  • Handle: RePEc:dre:wpaper:2006-8
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    References listed on IDEAS

    as
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    Cited by:

    1. Charles Courtemanche & Art Carden, 2014. "Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices," Southern Economic Journal, Southern Economic Association, vol. 80(3), pages 565-585, January.
    2. Alessandro Bonanno, 2010. "An empirical investigation of Wal-Mart's expansion into food retailing," Agribusiness, John Wiley & Sons, Ltd., vol. 26(2), pages 220-242.
    3. Bonanno, Alessandro & Ghosh, Gaurav S., 2010. "SNAP Efficacy and Food Access – A Nationwide Spatial Analysis," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany 116437, European Association of Agricultural Economists.
    4. Todd, Jessica E. & Mancino, Lisa & Leibtag, Ephraim S. & Tripodo, Christina, 2010. "Methodology Behind the Quarterly Food-at-Home Price Database," Technical Bulletins 97799, United States Department of Agriculture, Economic Research Service.
    5. Wang, Shinn-Shyr & Rojas, Christian & Lavoie, Nathalie, 2010. "Buyer Market Power and Vertically Differentiated Retailers," Working Paper Series 57165, University of Massachusetts, Amherst, Department of Resource Economics.
    6. Gullstrand Joakim & Jörgensen Christian, 2012. "Local Price Competition: The Case of Swedish Food Retailers," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 10(1), pages 1-27, March.
    7. Hovhannisyan, Vardges & Stiegert, Kyle W., 2011. "Imperfect Competition between Milk Manufacturers and Retailers in a Midwestern State in the U.S," 2011 Annual Meeting, February 5-8, 2011, Corpus Christi, Texas 98844, Southern Agricultural Economics Association.
    8. Martens, Bobby J. & Dooley, Frank J. & Florax, Raymond J.G.M., 2010. "A Spatial Analysis of the Effect of Entry by Supercenter and Warehouse Club Retailers on Grocery Sales," Journal of Food Distribution Research, Food Distribution Research Society, vol. 0(Number 2), pages 1-12, July.
    9. Rebecca Cleary & Rigoberto Lopez, 2014. "Supermarket responses to Wal-Mart Supercenter expansion: a structural approach," Empirical Economics, Springer, vol. 47(3), pages 905-925, November.
    10. Zimmerman, Paul R., 2009. "The competitive impact of hypermarket retailers on gasoline prices," MPRA Paper 20248, University Library of Munich, Germany.
    11. Ma, Meilin & Saitone, Tina L. & Volpe, Richard J. & Sexton, Richard J. & Saksena, Michelle, 2018. "Market Concentration, Market Shares, and Retail Food Prices: Evidence from the U.S. Women, Infants, and Children Program," 2018 Annual Meeting, August 5-7, Washington, D.C. 274205, Agricultural and Applied Economics Association.
    12. repec:oup:erevae:v:44:y:2017:i:4:p:634-657. is not listed on IDEAS
    13. Leibtag, Ephraim S. & Barker, Catherine & Dutko, Paula, 2010. "How Much Lower Are Prices at Discount Stores? An Examination of Retail Food Prices," Economic Research Report 96767, United States Department of Agriculture, Economic Research Service.
    14. Rojas Christian & Lavoie Nathalie & Wang Shinn-Shyr, 2012. "Buyer Power and Vertically Differentiated Retailers," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 10(1), pages 1-28, July.
    15. Volpe, Richard, 2011. "The Relationship Between National Brand and Private Label Food Products: Prices, Promotions, Recessions, and Recoveries," Economic Research Report 262234, United States Department of Agriculture, Economic Research Service.
    16. repec:oup:revage:v:30:y:2008:i:1:p:4-26. is not listed on IDEAS
    17. repec:ags:jlaare:119159 is not listed on IDEAS
    18. Secor, William & Çakır, Metin, 2016. "Impacts from a retail grocery acquisition: Do national and store brand prices respond differently?," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235945, Agricultural and Applied Economics Association.
    19. Bonanno, Alessandro, 2008. "An Empirical Investigation of Wal-Mart’s Expansion into Food Retailing," Research Reports 149931, University of Connecticut, Food Marketing Policy Center.
    20. Volpe, Richard & Kuhns, Annemarie & Jaenicke, Ted, 2017. "Store Formats and Patterns in Household Grocery Purchases," Economic Information Bulletin 256712, United States Department of Agriculture, Economic Research Service.
    21. Todd, Jessica E. & Mancino, Lisa & Leibtag, Ephraim S. & Tripodo, Christina, 2010. "Methodology Behind Quarterly Food- at- Home Price Database," Technical Bulletins 184309, United States Department of Agriculture, Economic Research Service.

    More about this item

    Keywords

    Wal-Mart; Supermarket Competition; Grocery Prices; National Brands; Private Labels;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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