Does Walmart Benefit Consumers? Some Economic Evidence.

by robekulick

Red and Sam G. both made comments that deserve a full response to my previous post about China and its currency policy. But because I’m exhausted from doing a macro-economic problem set for about 10 hours straight today (that’s only the first question), I’m going to wait until the weekend to get to that. Instead I have this for tonight:

This paper in the newest edition of the Quarterly Journal of Economics analyzes that most controversial of retailers, Walmart. Here is the abstract:

“This article 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 Walmart—the most significant shock to industry market structure in half a century—decreased shortfalls among large chains by about a third. The risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality.”

And here is a link to the working paper version of the article:

http://are.berkeley.edu/documents/seminar/matsa-competition-090706.pdf

Basically what the paper finds is that other supermarkets in an area are substantially less likely to run out of products after they are exposed to competition from Walmart. Since one of the main services offered by supermarkets is the combination of variety and reliability, this represents an increase in the quality of supermarkets. Of course, one can still object to Walmart on other grounds, but this represents cogent evidence that Walmart increases consumer welfare.

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