The Diffusion of Wal-Mart and Economies of Density

Research output: Contribution to journalArticle

113 Citations (Scopus)

Abstract

The rollout of Wal-Mart store openings followed a pattern that radiated from the center outward, with Wal-Mart maintaining high store density and a contiguous store network all along the way. This paper estimates the benefits of such a strategy to Wal-Mart, focusing on the savings in distribution costs afforded by a dense network of stores. The paper takes a revealed preference approach, inferring the magnitude of density economies from how much sales cannibalization of closely packed stores Wal-Mart is willing to suffer to achieve density economies. The model is dynamic with rich geographic detail on the locations of stores and distribution centers. Given the enormous number of possible combinations of store-opening sequences, it is difficult to directly solve Wal-Mart's problem, making conventional approaches infeasible. The moment inequality approach is used instead and works well. The estimates show the benefits to Wal-Mart of high store density are substantial and likely extend significantly beyond savings in trucking costs.

Original languageEnglish (US)
Pages (from-to)253-302
Number of pages50
JournalEconometrica
Volume79
Issue number1
DOIs
StatePublished - Jan 1 2011

Fingerprint

Wal-Mart
Savings
Revealed preference
Distribution center
Cannibalization
Trucking
Costs
Distribution costs
Moment inequalities

Keywords

  • Dynamics
  • Economies of density
  • Moment inequalities

Cite this

The Diffusion of Wal-Mart and Economies of Density. / Holmes, Thomas J.

In: Econometrica, Vol. 79, No. 1, 01.01.2011, p. 253-302.

Research output: Contribution to journalArticle

@article{aacdbb05c26a4784a1d63a01a0cb8b41,
title = "The Diffusion of Wal-Mart and Economies of Density",
abstract = "The rollout of Wal-Mart store openings followed a pattern that radiated from the center outward, with Wal-Mart maintaining high store density and a contiguous store network all along the way. This paper estimates the benefits of such a strategy to Wal-Mart, focusing on the savings in distribution costs afforded by a dense network of stores. The paper takes a revealed preference approach, inferring the magnitude of density economies from how much sales cannibalization of closely packed stores Wal-Mart is willing to suffer to achieve density economies. The model is dynamic with rich geographic detail on the locations of stores and distribution centers. Given the enormous number of possible combinations of store-opening sequences, it is difficult to directly solve Wal-Mart's problem, making conventional approaches infeasible. The moment inequality approach is used instead and works well. The estimates show the benefits to Wal-Mart of high store density are substantial and likely extend significantly beyond savings in trucking costs.",
keywords = "Dynamics, Economies of density, Moment inequalities",
author = "Holmes, {Thomas J}",
year = "2011",
month = "1",
day = "1",
doi = "10.3982/ECTA7699",
language = "English (US)",
volume = "79",
pages = "253--302",
journal = "Econometrica",
issn = "0012-9682",
publisher = "Wiley-Blackwell",
number = "1",

}

TY - JOUR

T1 - The Diffusion of Wal-Mart and Economies of Density

AU - Holmes, Thomas J

PY - 2011/1/1

Y1 - 2011/1/1

N2 - The rollout of Wal-Mart store openings followed a pattern that radiated from the center outward, with Wal-Mart maintaining high store density and a contiguous store network all along the way. This paper estimates the benefits of such a strategy to Wal-Mart, focusing on the savings in distribution costs afforded by a dense network of stores. The paper takes a revealed preference approach, inferring the magnitude of density economies from how much sales cannibalization of closely packed stores Wal-Mart is willing to suffer to achieve density economies. The model is dynamic with rich geographic detail on the locations of stores and distribution centers. Given the enormous number of possible combinations of store-opening sequences, it is difficult to directly solve Wal-Mart's problem, making conventional approaches infeasible. The moment inequality approach is used instead and works well. The estimates show the benefits to Wal-Mart of high store density are substantial and likely extend significantly beyond savings in trucking costs.

AB - The rollout of Wal-Mart store openings followed a pattern that radiated from the center outward, with Wal-Mart maintaining high store density and a contiguous store network all along the way. This paper estimates the benefits of such a strategy to Wal-Mart, focusing on the savings in distribution costs afforded by a dense network of stores. The paper takes a revealed preference approach, inferring the magnitude of density economies from how much sales cannibalization of closely packed stores Wal-Mart is willing to suffer to achieve density economies. The model is dynamic with rich geographic detail on the locations of stores and distribution centers. Given the enormous number of possible combinations of store-opening sequences, it is difficult to directly solve Wal-Mart's problem, making conventional approaches infeasible. The moment inequality approach is used instead and works well. The estimates show the benefits to Wal-Mart of high store density are substantial and likely extend significantly beyond savings in trucking costs.

KW - Dynamics

KW - Economies of density

KW - Moment inequalities

UR - http://www.scopus.com/inward/record.url?scp=78651421532&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=78651421532&partnerID=8YFLogxK

U2 - 10.3982/ECTA7699

DO - 10.3982/ECTA7699

M3 - Article

VL - 79

SP - 253

EP - 302

JO - Econometrica

JF - Econometrica

SN - 0012-9682

IS - 1

ER -