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

Michael Noel and Emek Basker

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: We analyze the effect of Wal-Mart's entry into the grocery market using a unique stor-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Mart's entry on competitors' prices of 24 grocery items across several categories. Wal-Mart's price advantage over competitors for these products averages approximately 10%. On average, competitors' response to Wal-Mart's entry is a price reduction of 1-1.2%, mostly due to smaller-scale competitors: the response of the "big three" supermarket chains (Alberson's, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Mart's effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.

Keywords: Wal-Mart; Retail Prices; Supermarkets; Price Competition (search for similar items in EconPapers)
Date: 2007-06-01
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The Evolving Food Chain: Competitive Effects of Wal‐Mart's Entry into the Supermarket Industry (2009)
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