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Do prices fall faster when Wal-Mart is around? The effect of competition and reputation on cost pass-through and price adjustment

M. Andrea Martens

No 49459, 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin from Agricultural and Applied Economics Association

Abstract: This study analyzes Wal-Mart’s pricing practices and its influence on competitors’ input cost transmission. Previous attempts to analyze Wal-Mart’s pricing strategy in the United States have been limited by the company’s refusal to provide scanner data to third party research firms such as AC Nielsen. This is the first study to observe Wal-Mart’s prices over an extended period of time. Using weekly-store level price data between 2001 and 2006 that government officials collected in 12 Mexican cities, I find that Wal-Mart adjusts its prices 1/3-3 times slower to wholesale price increases than other retailers and responds 5-7 times faster to wholesale price decreases than its competitors. This evidence is robust to the comparison of Wal-Mart to other hypermarkets that offer “every day low prices” and to potential endogeneity of Wal-Mart’s location choices. All retailers respond asymmetrically to wholesale cost changes. However, retailers other than Wal-Mart respond twice as fast to wholesale price increases than to decreases, while Wal-Mart behaves in the opposite way. I find no evidence that proximity to a Wal-Mart supercenter or the level of competition affects the speed of price adjustment of retailers.

Keywords: Agribusiness; Industrial Organization (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ure
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea09:49459

DOI: 10.22004/ag.econ.49459

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