Perhaps some of you have been following the debates in various cities (e.g., New York, Chicago) over big retail stores that land in their backyard. I enjoy reading about attempts to regulate economic activity because I believe it raises a central contradiction of American society: phrased as a question, how much regulation is necessary to maintain the free market? Maybe this is not a contradiction, but a perennial challenge. Two areas seem ripe for inquiry: The need to monitor big financial institutions and the limitations that some want to impose on mega-retailers who crowd out the little mom & pop establishments.
Regarding the second issue, I came across a book I thought might interest you. Al Norman has been writing critically about the retail chain Walmart for some time. He brings his insights and passion together in a book called Occupy Walmart. Below is a brief Q&A. Read More »
There’s a lot of data showing that Walmart causes prices to decline when it enters a local market (see here, here and here). Why then, according to a new study, does Costco have the opposite effect, and cause competitors to raise their prices? The answer boils down to the complex ways that stores choose to compete against each other, and shows that not all big box retailers are created equal. Here’s the abstract:
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Prior research shows grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam’s Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.