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Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices

Emek Basker

No 401, Working Papers from Department of Economics, University of Missouri

Abstract: I quantify the price effect of a low-cost entrant on retail prices using a case-study approach. I consider the effect of Wal-Mart entry on average city-level prices of various consumer goods by exploiting variation in the timing of store entry. The analysis combines two unique data sets, one containing opening dates of all US Wal-Mart stores and the other containing average quarterly retail prices of severalnarrowly-defined commonly-purchased goods over the period 1982-2002. I focus on 10 specific items likely to be sold at Wal-Mart stores and analyze their price dynamics in 165 US cities before and after Wal-Mart entry. An instrumental-variables specification corrects for measurement error in Wal-Mart entry dates. I find robust price effects for several products, including shampoo, toothpaste, and laundry detergent; magnitudes vary by product and specification, but generally range from 1.5-3% in the short run and four times as much in the long-run.

Keywords: Wal-Mart; Competition; Prices; Market Size (search for similar items in EconPapers)
JEL-codes: E31 L13 L81 (search for similar items in EconPapers)
Date: 2004-10-20, Revised 2004-03-16
New Economics Papers: this item is included in nep-com and nep-ent
Note: Length: 36 pgs.
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Citations: View citations in EconPapers (5) Track citations by RSS feed

Published in Journal of Urban Economics, 58:2 (September 2005), pp. 203-229

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