The evolving food chain: Competitive effects of wal-mart's entry into the supermarket industry

Emek Basker, Michael Noel

Research output: Contribution to journalArticle

96 Scopus citations

Abstract

We analyze the effect of Wal-Mart's entry into the grocery market using a unique store-level price panel data set. We use ordinary least squares and two instrumental-variables 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 entry by a Wal-Mart Supercenter is a price reduction of 1-1.2%, mostly due to smaller-scale competitors; the response of the "Big Three" supermarket chains (Albertson's, Safeway, and Kroger) is less than half that size. Low-end grocery stores, which compete more directly with Wal-Mart, cut their prices more than twice as much as higher-end stores. We confirm our results using a falsification exercise, 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.

Original languageEnglish
Pages (from-to)977-1009
Number of pages33
JournalJournal of Economics and Management Strategy
Volume18
Issue number4
DOIs
StatePublished - Dec 2009

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