Working Papers Series
Papers below are in pdf.
Emek Basker
WP 08-09
Supersize It: The Growth of Retail Chains and the Rise of the "Big Box" Retail Format
Emek Basker Shawn Klimek, and Pham Hoang Van
We offer a theory for the complementarity between the size of a retail chain and the scope of its business to explain the growth of general-merchandise firms and the expansion of the "superstore" format. The complementarity results from an interaction of the retailer's economies of scale and consumer gains from "one-stop shopping." We find support for our model in micro data from the Census of Retail Trade for 1977-2002. Retail chains with more stores carry more distinct product lines and as retail chains grow they add both stores and product lines. On average, we find that a chain adds one product line, such as shoes, computers, or jewelry, to an existing store with every new store it opens. For the average large chain, adding a new product line throughout the chain is correlated with adding 400 new stores, competing in over 8,000 new markets and increasing its competitive pressure in more than 10,000 additional markets.
JEL Codes: L11, L25, L81
Keywords: Retail, Chain, Big Box, Superstore, Economies of Scale, General Merchandise, One Stop Shopping
WP 08-05
Does Wal-Mart Sell Inferior Goods?
Emek Basker
I estimate the aggregate income elasticity of Wal-Mart's and Target's revenues using quarterly data for 1997-2006. I find that Wal-Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal-Mart selling "inferior goods" in the technical sense of the term. An upper bound on the aggregate income elasticity of demand for Wal-Mart's wares is -0.5.
JEL Codes: L81, D12
Keywords: Retail, Wal-Mart, Target, Inferior Goods
forthcoming in Economic Inquiry
WP 08-04
Imports "R" Us: Retail Chains as Platforms for Developing-Country Imports
Emek Basker and Pham Hoang Van
Wal-Mart, Toys "R" Us, and other large retail chains are often identified with cheap imports. We use data from the Census of Retail Trade and the International Trade Commission over the period 1997-2002 to test whether big chains serve as platforms for imports from LDCs. Using difference-in-difference specifications we show that Chinese and other LDC imports have increased disproportionately in retail sectors with the sharpest consolidation into chains. To quantify the importance of chain growth to import growth we apply a numerical algorithm that generates marginal propensities to import by firm size. The largest retail firms' propensity to import from China is 17 percentage points higher than that of smaller retailers; the corresponding difference in import propensities from LDCs as a whole is 27 points. The disproportionate growth of large retailers between 1997 and 2002 explains 5% of the overall growth in consumer goods imports, 20% of the growth in consumer goods imports from China, and 22% of the growth in consumer goods imports from LDCs.
JEL Codes: F12, F14, L11, L81
Keywords: Imports, Retail Chains
WP 07-12
The Evolving Food Chain: Competitive Effects of Wal-Mart?s Entry into the Supermarket Industry
Emek Basker & Michael Noel
We analyze the effect of Wal-Mart?s entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Mart?s entry on competitors? prices of 24 grocery items across several categories. Wal-Mart?s price advantage over competitors for these products averages approximately 10%. On average, competitors? response to Wal-Mart?s entry is a price reduction of 1?1.2%, mostly due to smaller-scale competitors: the response of the ?big three? supermarket chains (Albertson?s, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Mart?s effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.
JEL Codes: L11, L13, L81
Keywords: Wal-Mart, Retail Prices, Supermarkets, Price Competition
forthcoming in Journal of Economics and Management Strategy
WP 07-10
Wal-Mart as Catalyst to U.S.-China Trade
Emek Basker & Pham Hoang Van
Retail chains and the volume of imports of consumer goods from developing countries have grown sharply over the past 25 years. Wal-Mart?s sales, which currently account for 15% of U.S. imports of consumer goods from China, grew 90-fold over this period, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization, creating a two-way relationship between the chain?s size and its sourcing choice. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. Calculations based on our model suggest that the existence of the chain more than doubles the sensitivity of imports to tariff reductions. Technological innovations account for approximately 60% of Wal-Mart?s growth from 1984?2004 and reductions in input cost, due to tariff reductions and changes in sourcing, account for 40% of this growth.
JEL Codes: L11, L81, F12
Keywords: Wal-Mart, Trade, Economies of Scale, China, Technological Change, Retail Chain
WP 07-06
When Good Instruments Go Bad
Emek Basker
This note examines the instrumental variables method used by Neumark, Zhang, and Ciccarella (2005) to analyze Wal-Mart's effect on retail labor markets, and exposes major flaws in that methodology. Neumark, Zhang, and Ciccarella use an interaction between distance from Wal-Mart's headquarters and time effects to predict Wal-Mart's presence in a county, and find that each Wal-Mart store destroys, on average, approximately 200 retail jobs. These findings are in stark contrast to Basker (2005) who found a small, but positive and statistically significant, effect on jobs. I show that the IV estimates obtained by Neumark, Zhang, and Ciccarella confound Wal-Mart's causal effect with other factors. To illustrate the problem, I show that their methodology implies a large impact of Wal-Mart not only on retail employment but also on county manufacturing employment. Reduced-form estimates of the regressions show statistically and economically indistinguishable effects in counties with and without Wal-Mart presence, implying that other factors are most likely driving the results.
JEL Codes: C21, J21, L81
Keywords: Instrumental Variables, Wal-Mart, Retail Employment
WP 06-11
The Causes and Consequences of Wal-Mart's Growth
Emek Basker
Wal-Mart is the largest company in the world, yet little is known about its economic impact. This essay discusses what is known about Wal-Mart's competitive advantage and its economic impact on local communities, as well as the national and global economy, and highlights the open questions to be addressed by future research.
JEL Codes: L11, L25, L81
Keywords: Wal-Mart, Retail
published in Journal of Economic Perspectives (2007)
WP 05-06
Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade
Emek Basker and Pham Hoang Van
Retail chains and imports from developing countries have grown sharply over the past 25 years. Wal-Mart’s chain, which currently accounts for 10% of U.S. imports from China, grew 10-fold and its sales 90-fold over this period, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. This mechanism can explain why a surge in U.S. imports followed relatively modest tariff declines and why Wal-Mart abandoned its “Buy American” campaign in the 1990s. Also consistent with these facts, we show that tariff reductions have a greater effect the more advanced the retailer’s technology. The model has implications for the pace of the product cycle and sheds light on the recent apparent acceleration in foreign outsourcing.
JEL Codes: L11; L81; F12
Keywords: Wal-Mart, Trade, Economies of Scale, China, Technological Change, Retail Chain
WP 04-14
'Twas Four Weeks before Christmas: Retail Sales and the Length of the Christmas Shopping Season
Emek Basker
I study the effect of the length of the Christmas "shopping season" in the United States (traditionally, beginning the day after US Thanksgiving) on aggregate retail sales. I find a statistically significant increase in per-capita retail sales in November and December (combined) of approximately $6.50 per additional day over the relevant range. The implications of these finding are briefly discussed.
JEL Codes: L81, D12
Keywords: Christmas, Retail, Shopping
Published in Economic Letters, 89:3 (December 2005), pp. 317-322
WP 04-01
Selling a Cheaper Mousetrap: Wal-Mart’s Effect on Retail Prices
Emek Basker
I quantify the price effect of a low-cost entrant on retail prices using a case-study approach. I consider the effect of Wal-Mart entry on average city-level prices of various consumer goods by exploiting variation in the timing of store entry. The analysis combines two unique data sets, one containing opening dates of all US Wal-Mart stores and the other containing average quarterly retail prices of several narrowly-defined commonly-purchased goods over the period 1982-2002. I focus on 10 specific items likely to be sold at Wal-Mart stores and analyze their price dynamics in 165 US cities before and after Wal-Mart entry. An instrumental-variables specification corrects for measurement error in Wal-Mart entry dates. I find robust price effects for several products, including shampoo, toothpaste, and laundry detergent; magnitudes vary by product and specification, but generally range from 1.5-3% in the short run and four times as much in the long-run.
JEL Codes: L130, L810, E310
Keywords: Wal-Mart, Competition, Prices, Market Size
Published in Journal of Urban Economics, 58:2 (September 2005), pp. 203-229
WP 02-16
Education, Job Search and Migration
Emek Basker
Job-search and migration behavior differ across educational groups. In this paper, I explore several differences between the migration and search behavior of workers with different levels of education, both theoretically and empirically. I start with two stylized facts. First, the propensity to migrate increases with education. Second, conditional on migration, the probability that a worker moves with a job in hand (rather than moving to search for a job in the new location) also increases with education. I present a simple individual optimization problem that captures these facts and generates a number of predictions about differential sensitivity of migration to observed variables by education. These predictions, including a nonmonotonicity of migration elasticities with respect to business-cycle conditions by educational group, and less-educated groups’ higher sensitivity to local economic conditions in the migration decision, are verified using CPS data.
WP 02-15
Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion
Emek Basker
The phenomenal expansion of Wal-Mart provides a clean case for studying the labor-market effects of increased efficiency. I estimate the effect of Wal-Mart entry on retail employment at the county level. Using an instrumental-variables approach to correct for both measurement error in entry dates and possible endogeneity of the timing of entry, I find that Wal-Mart entry increases retail employment by 100 jobs in the year of entry. Half of this gain disappears over the next five years, leaving a statistically significant net gain of 50 jobs at the five-year horizon. The decline in retail employment in the years immediately following entry is associated with the closing of both small and large retail establishments. At the same time, retail employment in neighboring counties declines by approximately 30 jobs, and wholesale employment in the entered county declines by a similar number.
Published in Review of Economics and Statistics, 87:1 (2005), 174-183