Retail Markups and Discount-Store Entry

Lauren Chenarides, Miguel Gomez, Timothy J. Richards () and Koichi Yonezawa
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Lauren Chenarides: Colorado State University
Timothy J. Richards: Arizona State University
Koichi Yonezawa: University of Bristol

Review of Industrial Organization, 2024, vol. 64, issue 1, No 7, 147-181

Abstract: Abstract “Hard discounters” are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471). We find that hard-discounter entry reduced markups for incumbment retailers by 7.3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability—despite the somewhat higher sales realized by incumbent retailers.

Keywords: Discounters; Food retailing; Markups; Retail pricing; Production economics; D43; L13; M31 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Retail Markups and Discount Store Entry (2021)
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DOI: 10.1007/s11151-023-09926-w

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