OPPapers.com

Empirical Analysis Of Competition Between Wal-Mart And Other Retail Channels

Empirical Analysis of

Competition between

Wal-Mart and Other Retail Channels

Lesley Chiou
January 2008

Abstract

This paper quantifies the degree of competition among Wal-Mart and different retail channels by exploiting a unique dataset that describes a consumer’s choice of store. Using a discrete choice model, I estimate a consumer’s choice of retailer in the sales market for DVDs among online, mass merchant, electronics, video specialty, and music stores. Wal-Mart competes more intensely with other mass merchants, and conditional on price and distance, the average consumer still prefers Wal-Mart over most other stores. I also consider a counterfactual experiment regarding the entry of Wal-Mart into 15 proposed store sites in California.

JEL classification: C25, L81
Keywords: discrete choice, retail, Wal-Mart, cross-channel competition

* I would like to thank Glenn Ellison, Nancy Rose, Paul Joskow, and Sara Fisher Ellison for advice and helpful
suggestions. This paper has benefited from conversations with Emek Basker, Melissa Boyle, Norma Coe, Jerry Hausman, Joanna Lahey, Allison McKie, Erich Muehlegger, Aviv Nevo, Whitney Newey, Kenneth Train, Joan Walker, Birger Wernerfelt, and participants of several workshops, including the MIT Industrial Organization Workshop and Econometrics Lunch. I am particularly grateful to Alexander and Associates for allowing me access
to the data used in this study; I would also like to extend my thanks to Adams Media Research and Tax Data
Systems. Financial support for this project was provided by the Shultz Fund.
** Author’s e-mail: lchiou@oxy.edu.

Electronic copy available at: http://ssrn.com/abstract=1261243

1 Introduction

In 2002, the retail sector in the U.S. accumulated $3,173 billion in sales and rivaled the manufacturing sector with a total employment of approximately 15 million...