Abstract
The impact of Wal-Mart in lowering incumbents’ retail prices has been well documented by previous studies using reduced form models. This article uses a structural model to examine the pricing behavior and promotion responses of incumbent supermarkets to a rapid expansion of Wal-Mart Supercenters (WMS) using the Dallas–Fort Worth milk market as a case study. Empirical results verify that WMS expansion disciplines incumbent supermarkets by decreasing oligopoly power and numbing consumer responsiveness to promotion. In addition, WMS expansion lures away price-sensitive consumers, leaving incumbent supermarkets to face more price-inelastic but lower demands for milk.
Published Version
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