The Diffusion of Wal-Mart and Economies of Density

Research output: Contribution to journalArticlepeer-review

149 Scopus citations

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 2011

Bibliographical note

Copyright:
Copyright 2011 Elsevier B.V., All rights reserved.

Keywords

  • Dynamics
  • Economies of density
  • Moment inequalities

Fingerprint Dive into the research topics of 'The Diffusion of Wal-Mart and Economies of Density'. Together they form a unique fingerprint.

Cite this