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

Posted by D. Daniel Sokol

Emek Basker (University of Missouri) and Michael Noel (University of California–San Diego) touch upon antitrust in supermarkets in their new working paper The Evolving Food Chain: Competitive Effects of Wal-Mart’s Entry into the Supermarket Industry.

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. 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.