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We analyze the effect of supermarket entry on the exit of small stores in the food retailing sector in Montevideo between 1998 and 2007. We use detailed geographical information to identify the link between supermarket entry and the exit of nearby small stores. Entry of supermarkets using small- to medium-size formats creates a competitive threat for the existing small stores, decreasing their probability of survival. The result is robust to several model specifications and varying definitions of what constitutes a supermarket. The impact of supermarket entry is unequivocal for groceries, bakeries, fresh pasta shops, and butcher shops.

Supermarket Entry and the Survival of Small Stores