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Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices
Author(s) -
Courtemanche Charles,
Carden Art
Publication year - 2014
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-2012.135
Subject(s) - club , grocery store , business , quality (philosophy) , product (mathematics) , advertising , marketing , grocery shopping , warehouse , panel data , commerce , economics , medicine , philosophy , geometry , mathematics , epistemology , econometrics , anatomy
Prior research shows that grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big‐box retailers—Costco and Walmart‐owned Sam's Club—are quite different. Using city‐level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along nonprice dimensions, such as product quality or quality of the shopping experience. We find no evidence that Sam's Club entry affects grocery stores' prices, consistent with Sam's Club's focus on small businesses instead of consumers.