Here’s a link to the fifth in a series of papers Charles Courtemanche and I have written on warehouse clubs. The first four are mostly about Wal-Mart. This one focuses on how incumbent firms react to entry by warehouse clubs like Costco and Sam’s Club. Interestingly, the data suggest that incumbent grocers increase their prices in response to Costco entry. This is consistent with Austrian approaches to entrepreneurship and innovation that account for the fact that firms can adjust more than just prices in response to competition. A definitive answer would require much more detailed data than we have, but our results suggest that incumbents might be responding to competitive pressure from Costco by raising the quality of the shopping experience.
Curiously, we don’t see the same effect from Sam’s Club. We have some very indirect evidence that Sam’s Club targets small businesses while Costco sells to middle-class families. Indeed, one of the next papers in the series will consider how Sam’s Club and Costco affect small business entry and exit.
Again, the paper can be downloaded here. It’s under review at the RAND Journal of Economics, but comments are most certainly welcome as this is only one part of a very, very large project.
{ 2 comments }
Sam’s Club tends to set up in the same areas as a Wal-Mart as they’re owned by the same company, which is probably why you don’t see the same impact as a Costco.
Perhaps the incumbent strives to position itself as a “better” brand (better shopping experience) or gives up the price competiton trying to keep margin by fully exploiting the proximity advantage?
Comments on this entry are closed.