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Entry of Wal-Mart Supercenters and Supermarkets’ Profit Margins

Xiaoou Liu and Rigoberto Lopez ()
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Xiaoou Liu: University of Connecticut

No 3, Working Papers from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

Abstract: This article quantifies the impact of Wal-Mart Supercenters on supermarkets’ profitability via a two-stage dynamic entry game, using method of simulated moments and milk scanner data from Dallas/Fort Worth supermarkets. The empirical findings show that the entry of Wal-Mart Supercenters accounts for about an average 50% decrease in milk profit margins for incumbent supermarkets. Effects of scale are found to be more significant for Wal-Mart Supercenters than for incumbent supermarkets, granting Wal-Mart a competitive edge.

Keywords: Wal-Mart; entry; profit margins; milk; dynamic games (search for similar items in EconPapers)
JEL-codes: C73 D4 L1 L66 L81 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2011-06
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