What Happens When Wal‐Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry

By Panle Jia. 2008

635 citations recorded by the source corpus.

In the past few decades multistore retailers, especially those with 100 or more stores, have experienced substantial growth. At the same time, there is widely reported public outcry over the impact of these chain stores on other retailers and local communities. This paper develops an empirical model to assess the impact of chain stores on other discount retailers and to quantify the size of the scale economies within a chain. The model has two key features. First, it allows for flexible competition patterns among all players. Second, for chains, it incorporates the scale economies that arise from operating multiple stores in nearby regions. In doing so, the model relaxes the commonly used assumption that entry in different markets is independent. The lattice theory is exploited to solve this complicated entry game among chains and other discount retailers in a large number of markets. It is found that the negative impact of Kmart's presence on Wal-Mart's profit was much stronger in 1988 than in 1997, while the opposite is true for the effect of Wal-Mart's presence on Kmart's profit. Having a chain store in a market makes roughly 50% of the discount stores unprofitable. Wal-Mart's expansion from the late 1980s to the late 1990s explains about 40-50% of the net change in the number of small discount stores and 30-40% for all other discount stores. Scale economies were important for Wal-Mart, but less so for Kmart, and the magnitude did not grow proportionately with the chains' sizes. Copyright 2008 The Econometric Society.

Subfields: Economics and Econometrics, Marketing

View Paper: https://www.semanticscholar.org/paper/2c30151a8ffa8df700105a7d12a213da8cf0bbd4

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Citations in the corpus

The Effects of Wal-Mart on Local Labor Markets (2006, positive): “28 Jia (2006) addresses the endogeneity of Wal-Mart store locations in a more structural fashion.”
Policy Influence and Private Returns from Lobbying in the Energy Sector (2016, background): “For example, in assessing the impact of chain retail stores on the other retailers and local community, Jia (2008) exploits the supermodularity of the entry games in multiple locations/markets by two chain stores.”
Discrete games with flexible information structures: an application to local grocery markets (2014, methodology): “The methods of Pakes and Pollard (1989) can be used to show that ΨR converges to Ψ uniformly in Θ as R increases.”
Limit theorems for network dependent random variables (2019, background): “See Jia (2008) for an application in entry decisions in retail markets, and Boucher and Mourifie (2017) for an inference problem for a network formation model.”
The Causes and Consequences of Wal-Mart's Growth (2007, background): “To quantify this eect, Jia (2005) estimates”
Econometric Analysis of Games with Multiple Equilibria (2012, background): “…also appears for the empirical analyses of Ackerberg & Gowrinsankaran (2006), in which an equilibrium selectionmechanismwith support on the best andworst equilibria is incorporated into the econometric model, and of Jia (2008), in which one of the extremal equilibria is assumed to be selected.”
The Margins of Global Sourcing: Theory and Evidence from U.S. Firms (2017, positive): “To reduce the dimensionality of the firm’s problem, we rely on Proposition 2 and adopt an algorithm first developed by Jia (2008).”
Entry Barriers in Retail Trade (2011, positive): “Jia (2008) instead develops a structural model to determine the effects of national discount chains on small retailers and the extent of the economies of scale within a multi-unit retail chain.”
Estimating Network Economies in Retail Chains: A Revealed Preference Approach (2010, methodology): “Jia (2008) examines the strategic store placement decisions of Kmart and Wal-Mart, using a full solution method that exploits a supermodular representation of the two-player game.”
Retail Globalization and Household Welfare: Evidence from Mexico (2015, background): “Finally, since Walmart de México is the major foreign retailer expanding during our estimation period, the paper relates to an extensive literature on the effects of Walmart in the United States (e.g. Basker 2005a; Jia 2008; Hausman and Leibtag 2007; and Holmes 2011).”
Spatial competition with endogenous location choices: An application to discount retailing (2009, positive): “ Jia (2008) makes contribution to the literature by incorporating the “spill over” effects across market within a firm.”
Diverging Trends in National and Local Concentration (2018, neutral): “In this section, we repeat Figures (1)-(4) in the main text including establishments whose primary SIC 2 code is 80.”
Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition (2016, positive): “In contrast, in another set of (primarily smaller, Western) markets, Wal-Mart’s entry greatly concentrates the market in a way that closely resembles the impact of its initial entry into discount retailing two decades earlier (Jia, 2008).”