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The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry

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Abstract

We analyze the effect of Wal-Marts entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Marts entry on competitors prices of 24 grocery items across several categories. Wal-Marts price advantage over competitors for these products averages approximately 10%. On average, competitors response to Wal-Marts entry is a price reduction of 11.2%, mostly due to smaller-scale competitors: the response of the big three supermarket chains (Albertsons, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Marts effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.

Suggested Citation

  • Emek Basker & Michael Noel, 2007. "The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry," Working Papers 0712, Department of Economics, University of Missouri.
  • Handle: RePEc:umc:wpaper:0712
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    More about this item

    Keywords

    Wal-Mart; Retail Prices; Supermarkets; Price Competition;
    All these keywords.

    JEL classification:

    • 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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