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The Evolving Food Chain: Competitive Effects of Wal-Marts Entry into the Supermarket Industry
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Abstract
We analyze the effect of Wal-Marts 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-Marts entry on competitors prices of 24 grocery items
across several categories. Wal-Marts price advantage over competitors for these
products averages approximately 10%. On average, competitors response to
Wal-Marts entry is a price reduction of 11.2%, mostly due to smaller-scale competitors: the response of the big three supermarket chains (Albertsons,
Safeway, and Kroger) is less than half that size. We confirm our results using a
falsification exercises, in which we test for Wal-Marts effect on prices of services
that it does not provide, such as movie tickets and dry cleaning services.Wal-Mart, Retail Prices, Supermarkets, Price Competition