Retail Markups and Discount-Store Entry

Lauren Chenarides; Miguel Gómez; Timothy Richards; Koichi Yonezawa

doi:10.1007/s11151-023-09926-w

Retail Markups and Discount-Store Entry

Lauren Chenarides, Miguel Gómez, Timothy Richards^*, Koichi Yonezawa

^*Corresponding author for this work

School of Management - Business School

Research output: Contribution to journal › Article (Academic Journal) › peer-review

1 Citation (Scopus)

Abstract

"Hard discounters" are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471). We find that hard-discounter entry reduced markups for incumbment retailers by 7.3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability—despite the somewhat higher sales realized by incumbent retailers.

Original language	English
Pages (from-to)	147–181
Number of pages	35
Journal	Review of Industrial Organization
Volume	64
Early online date	20 Oct 2023
DOIs	https://doi.org/10.1007/s11151-023-09926-w
Publication status	Published - 1 Feb 2024

Bibliographical note

Funding Information:
Authorship is alphabetical. Copyright 2023. Users may copy with permission. Funding from Agriculture and Food Research Initiative (National Institute for Food and Agriculture, USDA) Grant No. 2019-05808 is gratefully acknowledged. Disclaimer: The Findings and Conclusions in This Preliminary Manuscript Have Not Been Formally Disseminated by the U.S. Department of Agriculture and Should Not Be Construed to Represent Any Agency Determination or Policy. This research was supported in part by the intramural research program of the U.S. Department of Agriculture, Economic Research Service. The findings and conclusions in this manuscript are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy. The analysis, findings, and conclusions expressed in this presentation also should not be attributed to Nielsen.

Publisher Copyright:
© 2023, The Author(s).

Keywords

Discounters
Food retailing
Markups
Retail pricing
Production economics

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title = "Retail Markups and Discount-Store Entry",

abstract = "{"}Hard discounters{"} are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471). We find that hard-discounter entry reduced markups for incumbment retailers by 7.3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability—despite the somewhat higher sales realized by incumbent retailers.",

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note = "Funding Information: Authorship is alphabetical. Copyright 2023. Users may copy with permission. Funding from Agriculture and Food Research Initiative (National Institute for Food and Agriculture, USDA) Grant No. 2019-05808 is gratefully acknowledged. Disclaimer: The Findings and Conclusions in This Preliminary Manuscript Have Not Been Formally Disseminated by the U.S. Department of Agriculture and Should Not Be Construed to Represent Any Agency Determination or Policy. This research was supported in part by the intramural research program of the U.S. Department of Agriculture, Economic Research Service. The findings and conclusions in this manuscript are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy. The analysis, findings, and conclusions expressed in this presentation also should not be attributed to Nielsen. Publisher Copyright: {\textcopyright} 2023, The Author(s).",

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N1 - Funding Information: Authorship is alphabetical. Copyright 2023. Users may copy with permission. Funding from Agriculture and Food Research Initiative (National Institute for Food and Agriculture, USDA) Grant No. 2019-05808 is gratefully acknowledged. Disclaimer: The Findings and Conclusions in This Preliminary Manuscript Have Not Been Formally Disseminated by the U.S. Department of Agriculture and Should Not Be Construed to Represent Any Agency Determination or Policy. This research was supported in part by the intramural research program of the U.S. Department of Agriculture, Economic Research Service. The findings and conclusions in this manuscript are those of the author(s) and should not be construed to represent any official USDA or U.S. Government determination or policy. The analysis, findings, and conclusions expressed in this presentation also should not be attributed to Nielsen. Publisher Copyright: © 2023, The Author(s).

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N2 - "Hard discounters" are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471). We find that hard-discounter entry reduced markups for incumbment retailers by 7.3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability—despite the somewhat higher sales realized by incumbent retailers.

AB - "Hard discounters" are retail formats that set retail food prices even lower than existing discount formats, such as Walmart and Target. Offering limited assortments and focusing on store-brands, these formats promise to change the competitive landscape of food retailing. In this paper, we study the effect of entry of one hard-discount format on markups earned by existing retail stores, focusing on several important grocery markets across the Eastern U.S. Focusing on establishment-level profitability, we estimate store-level markups using the production-side approach of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471). We find that hard-discounter entry reduced markups for incumbment retailers by 7.3% relative to markups in non-entry markets. These results indicate that the net effect of hard-discounter entry reduces the overall level of store profitability—despite the somewhat higher sales realized by incumbent retailers.

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DO - 10.1007/s11151-023-09926-w

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VL - 64

SP - 147

EP - 181

JO - Review of Industrial Organization

JF - Review of Industrial Organization

ER -

Retail Markups and Discount-Store Entry

Abstract

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Keywords

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