The Competitive Effects of Entry: Evidence from Supercenter Expansion

Abstract

Coupling weekly grocery transaction records with the exact location and opening date of entering Walmarts over an eleven year period, we examine how Supercenter entry affects prices and revenues at incumbent supermarkets. We find that entry within one mile of an incumbent causes a sharp 16% drop in revenue, an effect that decays quickly with distance. Surprisingly, despite large cross store differences in prices of supermarkets by exposure to Walmart, our findings also indicate that Supercenter entry has no causal effect on incumbent prices. This lack of a price response is robust across many dimensions, including a lack of response for individual categories and brands within a category.

Keywords: supermarkets, Walmart, competition, competitive effects, price response