By Request: Walmart and Big Box Retailers, Part II: Results
By Art Carden
As I mentioned earlier, Discount Retailing ate my research agenda. Charles Courtemanche and I have written a handful of papers (a couple of them with Jeremy Meiners) about the effects of Walmart (and now Costco) on different aspects of a good life. I summarized some of this for The Freeman in early 2010.
The TL;DR on our work: Walmart’s lower prices have a lot of beneficial economic effects. There isn’t much to say these lower prices come at the expense of less-robust community life, and one of the offsetting costs (slightly higher obesity due to Walmart Supercenter entry) is very small relative to the savings people enjoy from low prices and Walmart’s competitive effects.
You can find our journal articles on Walmart here (the link to the Costco paper needs to be updated). The first three papers, which appeared in 2009, suggest that Walmart doesn’t really matter that much when it comes to social capital, individual values, and leisure activities. We’re gaining the world, so to speak, with lower prices and greater selection, but we are not losing our souls in that we aren’t increasingly-alienated from one another, moving our values in more or less-conservative directions, or sacrificing refined learning for lowbrow pursuits. To paraphrase our 2009 paper “Wal-Mart, Leisure, and Culture,” people aren’t trading T.S. Eliot’s “The Wasteland” for television’s vast wasteland because of Walmart entry.
Walmart lowers prices and increases selection. It stands to reason, perhaps, that more Walmart Supercenters might mean people eating more, which in turn might mean higher obesity. In the first version of our paper on this subject, we found that there were actually very small reductions in obesity due mostly to the presence of Walmart discount stores and warehouse clubs. We attributed this to an income effect, and it led to my first contribution to Forbes. After the paper bounced around a few editors’ desks–it even made it past the editors and to the referees at the Quarterly Journal of Economics–we adopted a different identification strategy at the suggestion of referees at the Journal of Urban Economics and found that there’s a different story at play. Using distance from Bentonville, Arkansas to predict Walmart Supercenter locations, we find that Super Walmarts lead to rising Body Mass Indexes and a higher probability of being obese. Some back-of-the-envelope calculations show, though, that the obesity-related health costs we can attribute to Walmart Supercenters is a small fraction of the increase in consumer well-being attributable to lower prices.
In our most recent paper, we find evidence that incumbents react to Costco entry with higher prices. Since the price data we were using does not sample warehouse clubs, we were able to get pretty clean identification of the Costco effect on prices. This could be because incumbents write off price-sensitive shoppers and focus on catering to price-insensitive shoppers (as Frank and Salkever argues happens sometimes in response to generic drug entry). It could also be because firms respond to Costco entry by offering better selection, better amenities, and so on. We don’t discuss this in the paper, but there might be an agglomeration effect whereby Costco entry raises demand for goods and all surrounding stores, and this agglomeration effect dominates the price effect on demand for competitors’ products. We don’t see the same effect for Sam’s Club, and that remains a bit of an unsolved mystery at this point though we argue that it could be that Sam’s sells more product to small business customers while Costco’s customers are mostly families. We plan to explore that in greater detail in the future.
What does this mean for public policy? When I give talks on the issue, I argue that there’s no good reason for communities to fight Walmart and other Big Boxes, but there’s no good reason for communities to give them special privileges, subsidies, and other breaks either.
In terms of my research agenda, discount retailing has been the gift that keeps on giving. We’ll write a book about it someday, but for now, there’s still a lot we don’t know.
If you’re interested in more, here’s a talk I gave on Walmart in 2011 at Middle Tennessee State.