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Intel

In: Business and Management

Submitted By meera92
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The Evolving Food Chain: Competitive Effects of
Wal-Mart’s Entry into the Supermarket Industry∗
Emek Basker
University of Missouri

Michael Noel
University of California–San Diego
September 2008

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 entry by a Wal-Mart Supercenter 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. Low-end grocery stores, which compete more directly with Wal-Mart, cut their prices more than twice as much as higher-end stores. We confirm our results using a falsification exercise, 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.
JEL Codes: L11, L13, L81
Keywords: Wal-Mart, Retail Prices, Supermarkets, Price Competition



Contact: emek@missouri.edu or mdnoel@ucsd.edu. We thank Saku Aura, Roger Betancourt, Paul
Dobson, Luke Froeb, Jerry Hausman, G¨nter Hitcsh, Ephraim Leibtag, Saul Lach, Daniel Levy, Ye¸im u s
Orhun, David Parsley, the editor and two anonymous referees for helpful comments, seminar participants at the Federal Reserve Bank of San Francisco, UC Santa Cruz, Bar-Ilan University, DePaul University,
University of Illinois–Chicago, University of Milan, Norwegian University of Science and Technology, the
2006 Comparative Analysis of Enterprise (Micro) Data Conference (Chicago), the 2007 IIOC (Savannah) and
QME Conference (Chicago), and the...

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