Is Wal-Mart Really Winning in the Grocery Business?

ROCHESTER, N.Y., June 8, 2016 -- It's a widely accepted adage that when a large, national retail-chain enters an urban market, small businesses suffer as a result. But, contrary to popular opinion, that's not always the case, according to new research from Paul Ellickson from Simon Business School at the University of Rochester.

The research titled, "Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition," concludes that independent grocers actually thrive when Wal-Mart enters, leading to an overall reduction in market concentration.

"Our research suggests that Wal-Mart's impact on a particular market structure varies greatly across markets," says Paul Ellickson, professor of marketing and economics at Simon Business School. "We see that small grocery businesses with a high degree of differentiation in larger markets can actually benefit from Wal-Mart's presence, while the larger grocery chains tend to suffer."

Ellickson and his co-authors, Peter Arcidiacono and Patrick Bayer of Duke University, and Jason Blevins of Ohio State University, developed a series of mathematical models which they applied to retail grocery sectors where Wal-Mart was rapidly expanding. The research results show that Wal-Mart's expansion into the grocery sector came mostly at the expense of the large incumbent supermarket chains leading some to exit the market completely, rather than the single-store outlets that bore the brunt of Wal-Mart's earlier rout of the broader general merchandise sector.

Researchers examined the impact of Wal-Mart's rapid expansion into the retail grocery industry from 1994–2006 and modeled the decisions of Wal-Mart and its rivals over whether to operate grocery stores in a particular market. The data included the choices of Wal-Mart and up to seven competing chains as well as single-store market entry and exit decisions.

To learn more about the cutting-edge research being conducted at Simon Business School, please visit www.simon.rochester.edu.

About Simon Business School

The Simon Business School is currently ranked among the leading graduate business schools in the world in rankings published by the popular press, including Bloomberg Businessweek, U.S. News & World Report, and the Financial Times. The Financial Times recently rated the School No. 9 in the world for finance. More information about Simon Business School is available at www.simon.rochester.edu.

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