Working Paper: NBER ID: w17220
Authors: Charles J. Courtemanche; Art Carden
Abstract: 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 could be explained by a segmented-market model, or by 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.
Keywords: grocery prices; Costco; Sam's Club; Walmart; competition
JEL Codes: L11; L13; L81; R10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Costco entry (L81) | incumbents focus on non-price competition (L13) |
| Costco entry (L81) | increase in grocery prices among incumbent retailers (L81) |
| Sam's Club entry (L81) | negligible effect on grocery prices (D19) |
| Walmart Supercenters (L81) | decrease in grocery prices (Q11) |