The Dynamic Competitive Effects of Walmart's Store Format Choices

43 Pages Posted: 18 Aug 2009

See all articles by Randal Watson

Randal Watson

University of Texas at Austin - Department of Economics

Dae-Yong Ahn

Chung-Ang University

Date Written: August 13, 2009

Abstract

We study the role of store-format choices in dynamic competition between two major chains in the U.S. discount-store industry. The aim is to measure the effect on Kmart profits of Walmart Supercenters, which combine a full-service grocery with a regular discount store. The data are a six-year panel of chains' entry and exit histories (including Walmart's format choices) in a set of small- to medium-sized markets. Using recent techniques for the empirical analysis of dynamic discrete games, we estimate Kmart's exit decision in each market as arising from an asymmetric Markov-perfect equilibrium of a dynamic game of entry and exit. In the structural estimation Kmart's per-period profits show a significantly negative response to both the Supercenter and ordinary Walmart formats. But any difference between the effects of the two formats is not statistically discernible, which is consistent with earlier research.

Keywords: chain stores, dynamic games, endogenous differentiation

JEL Classification: L1, L81

Suggested Citation

Watson, Randal and Ahn, Dae-Yong, The Dynamic Competitive Effects of Walmart's Store Format Choices (August 13, 2009). Available at SSRN: https://ssrn.com/abstract=1457093 or http://dx.doi.org/10.2139/ssrn.1457093

Randal Watson (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Dae-Yong Ahn

Chung-Ang University ( email )

221 Heuksuk-dong
Dongjak-gu
Seoul, 156-756
Korea, Republic of (South Korea)