Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices
46 Pages Posted: 1 Mar 2011
Date Written: February 28, 2011
Research shows that grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam's Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.
Keywords: Wal-Mart, Walmart, Costco, Sam’s Club, Warehouse Clubs, Grocery Prices, Competition, Retail
JEL Classification: L11, L13, L81, R10
Suggested Citation: Suggested Citation