Nov 11, 2011

Another Wal-Mart effect

According to this article published in the latest number (August 2011) of the QJE, one of the main effects is that more Wallmart stores povides strong incentives for other stores to invest in product quality. The evidence is from the US but is relevant for developing countries where Wal-Mart now has strong presence. 
AbstractThis paper analyzes the effect of competition on a supermarket firm’s incentive to provide product quality. In the supermarket industry, product availability is an important measure of quality. Using U.S. consumer price index microdata to track inventory shortfalls, I find that stores facing more intense competition have fewer shortfalls. Competition from Wal-Mart – the most significant shock to industry market structure in half a century – decreased shortfalls by up to 24 percent. The risk of customers switching stores appears to provide strong incentives for investments in product quality.
The evidence is quite compelling. Great paper! [the chart was taken from the working paper (2009)].

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