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The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry

37 Pages Posted: 18 Jun 2007  

Emek Basker

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

Michael D. Noel

Texas Tech University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

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 OLS and two IV 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 Wal-Mart's entry 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. We confirm our results using a falsification exercises, 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.

Keywords: Wal-Mart, Retail Prices, Supermarkets, Price Competition

JEL Classification: L11, L13, L81

Suggested Citation

Basker, Emek and Noel, Michael D., The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry (July 2007). Available at SSRN: https://ssrn.com/abstract=994460 or http://dx.doi.org/10.2139/ssrn.994460

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

Michael D. Noel

Texas Tech University ( email )

237 Holden Hall
Box 41014
Lubbock, TX 79407
United States

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