Wednesday, December 12, 2012
Posted by D. Daniel Sokol
PJ Glandon (Department of Economics, Colgate University) and Matthew Jaremski (Department of Economics, Colgate University) discuss Sales and Firm Entry: The Case of Wal-Mart. ABSTRACT: Temporary price reductions or sales have become increasingly important in the evolution of the price level. We present a model of repeated price competition to illustrate how entry causes incumbents to alternate between high and low prices. Using a six year panel of weekly observations from a grocery chain, we find that individual stores employ more sales as the distance to Wal-Mart falls. Moreover, the increase in the frequency of sales was concentrated on the most popular products, suggesting the use of a loss-leader strategy.