By Request: Walmart and Big-Box Retailers, Part I: Origins
My latest stint with EconLog ends in a couple of days, and a couple of people wanted to know more about my work on Walmart. I’m happy to oblige as Charles Courtemanche and I are working on a paper about General Merchandisers for the Elgar Handbook of the Economics of Retailing and Distribution that’s due on December 15 (note to students: we have deadlines and due dates, too!).
First, here’s the origins story as it’s relevant for young scholars who are either in the middle of grad school or in the first couple of years off the job market.
I wrote my dissertation on the economic history of the South with an emphasis on lynching as a proxy for low-quality property rights institutions. From this emerged my 2009 paper that appeared in the Review of Austrian Economics and my chapter on The Southern Economy that appeared in The Oxford Handbook of Southern Politics, and it provided the groundwork for a paper with Chris Coyne on the Memphis Riot of 1866. I still have a small mountain of projects related to all these, but to be perfectly honest and transparent (and a little vulnerable), I’ve been fighting a huge mental block on these projects for years. I’m still chipping away at it, slowly and still somewhat unsuccessfully.
Social capital was an important theme in my dissertation. During my first semester at Rhodes College, I agreed to join a couple of friends from grad school (Charles Courtemanche and Jeremy Meiners) on an empirical paper about social capital. At around the same time, I wrote a piece for Mises.org called “Why Wal-Mart Matters” that was based on a discussion we’d had in Econ 101.
While thinking about the social capital paper, I recalled two things. First, Emek Basker has posted all of her Walmart data online. Second, there is a popular view that Walmart (or more generally, free-market capitalism) delivers the goods but destroys communities and erodes social capital. We decided to take this to the data.
Later, we discovered that, at the time, Robert Putnam had put his data from Bowling Alone online, as well. As of this writing, the data are not on the website. This actually allowed us to turn one paper into what became three papers on how Walmart affects social capital, individual values, and leisure/cultural activities. These papers also led me to review several books about Walmart for Economic Affairs and EH.Net. Discount retailing ate my research agenda, but in a good way as it led to a lot of fruitful research projects.
As my co-author Charles Courtemanche is an expert on the economics of obesity, we decided to follow up with a paper on how Walmart entry affects obesity. This paper went through multiple versions before it landed in the hands of referees at the Journal of Urban Economics who suggested an alternative identification approach. I tell the full story about how our experience with this paper showed the institutions of scientific inquiry at their best here. We believed one thing going in (Walmart probably makes us fatter), we found one thing (maybe not), then referees asked us to change our empirical approach and we learned some really cool stuff: it turns out our priors were actually right and there are some increases in obesity due to Walmart Supercenters, but the health costs are small relative to consumers’ benefits from Walmart’s price advantages and price effects on competing retailers.
Most recently, we published a paper on the competitive effects of Costco entry in the Southern Economic Journal. Our obesity paper got us interested in the price effects of warehouse clubs, and it appears that incumbents actually raise their prices when Costco enters. This isn’t self-evidently crazy or a violation of the law of demand: there’s literature out there suggesting that smaller firms sometimes compete with Big Boxes by focusing on service and other retail amenities, and in the published version we rely on Richard Frank and David Salkever’s model in which generic entry causes producers of brand-name drugs to forsake extremely price-sensitive consumers and focus on the less price-elastic consumers. We don’t discuss this in the paper, but there could also be an agglomeration effect whereby Costco entry lowers search costs for visitors to a shopping district and raises demand for other firms’ wares in a way that might dominate the competitive effect.
So what are we working on now? There’s the aforementioned handbook chapter. We’re also working on a paper about Supercenter entry and food security. After heroic efforts by my coauthor with a series of applications, we (finally) have access to restricted data in Atlanta’s Regional Data Center, so the paper should be finished soon.
David R. Henderson
Nov 28 2014 at 2:36pm
Nice story about the research process.
Dec 2 2014 at 1:30pm
Agreed, these kinds of posts are especially interesting for grad students doing IO. I’m sure we’re a small proportion of readership, but I’d be interested in reading more posts like.
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