Price dispersion across U.S. cities: The role of Walmart

Abstract

This study examines the effect of Walmart on price dispersion across US cities. Although US retail architecture has been changed over the past two decades by the expansion of big-box chain-stores such as Walmart, the impact of such market consolidation on price dispersion is not examined rigorously. Using opening/conversion dates of Walmart and good-specific quarterly retail prices for 101 US cities over 25 years, we examine the role of Walmart on price dispersion across US cities. Our analysis shows that price dispersion in a city-pair increases when Walmart enters one of the cities in the pair. When Walmart enters the other city of the city-pair, price dispersion falls from that increased level but the fall is not enough to bring the price dispersion back to the level where there is no Walmart in the city-pair. This finding implies that Walmart drives down prices in ‘early’ cities more than in ‘late’ cities and that prevalence of big-box stores may be one of the reasons for price dispersion across cities.