Wal-Mart and the Geography of Grocery Retailing
Paul B. Ellickson
University of Rochester - Simon School of Business
Paul L.E. Grieco
Pennsylvania State University - Department of Economics
April 22, 2011
Journal of Urban Economics, Forthcoming
This paper empirically examines the impact of entry by Wal-Mart on competition in the supermarket industry. Using a detailed panel dataset spanning 1994 to 2006, we estimate the impact of Wal-Mart on firm outcomes and market structure, controlling for persistent local trends and systematic differences across markets by exploiting the detailed spatial structure of our store-level census. We find that Wal-Mart's impact is highly localized, affecting firms only within a tight, two-mile radius of its location. Within this radius, the bulk of the impact falls on declining firms and mostly on the intensive margin, entry of new firms is essentially unaffected. Moreover, the stores most damaged by Wal-Mart's entry are the outlets of larger chains. This suggests that Wal-Mart's expansion into groceries is quite distinct from its earlier experience in the discount industry, where the primary casualties were small chains and sole proprietorships that were forced to exit the market. This contrast sheds light on the role density economies play in shaping both equilibrium market structure and economic geography. In the case of grocery competition, high travel costs and the perishable nature of groceries appear to impart horizontal differentiation between firms. This differentiation in demand appears to reduce impact of scale economies advantages that Wal-Mart exploited to the detriment of far-flung competitors in the discount store industry.
Number of Pages in PDF File: 46
Keywords: Economic Geography, Spatial Competition, Retail Trade, Supermarkets
JEL Classification: R12, C23, L11, L50, M31, L81
Date posted: April 24, 2011 ; Last revised: September 17, 2012
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