37 Pages Posted: 18 Jun 2007
Date Written: July 2007
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: 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