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Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices

36 Pages Posted: 9 Jan 2004 Last revised: 19 Nov 2007

Emek Basker

U.S. Census Bureau - Center for Economic Studies; University of Missouri - Department of Economics

Abstract

I quantify the price effect of a low-cost entrant on retail prices using a case-study approach. I consider the effect of Wal-Mart entry on average city-level prices of various consumer goods by exploiting variation in the timing of store entry. The analysis combines two unique data sets, one containing opening dates of all US Wal-Mart stores and the other containing average quarterly retail prices of several narrowly-defined commonly-purchased goods over the period 1982-2002. I focus on 10 specific items likely to be sold at Wal-Mart stores and analyze their price dynamics in 165 US cities before and after Wal-Mart entry. An instrumental-variables specification corrects for measurement error in Wal-Mart entry dates. I find robust price effects for several products, including shampoo, toothpaste, and laundry detergent; magnitudes vary by product and specification, but generally range from 1.5-3% in the short run and twice that in the long-run.

Keywords: Wal-Mart, competition, prices, market size

JEL Classification: L130, L810, E310

Suggested Citation

Basker, Emek, Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices. Journal of Urban Economics, Vol. 58, No. 2, September 2005. Available at SSRN: https://ssrn.com/abstract=484903

Emek Basker (Contact Author)

U.S. Census Bureau - Center for Economic Studies ( email )

4600 Silver Hill Road
Washington, DC 20233-9100
United States

University of Missouri - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

HOME PAGE: http://emekbasker.org

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