Say Jerry Hausman and Ephraim Leibtag in a new National Bureau of Economic Research (NBER) study (Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart):
The abstract:
Consumers often benefit from increased competition in differentiated product settings. In this paper we consider consumer benefits from increased competition in a differentiated product setting: the spread of non-traditional retail outlets.
In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior.
We find the benefits to be substantial, both in terms of food expenditure and in terms of overall consumer expenditure. Low income households benefitthe most.
I've done the division into paragraphs.
Wal-Mart is big but it's not a monopolist. It has to sell at low prices to survive. But that does not mean it makes big profits. In fact, it's profit margin is razor thin, especially when compared to real monopolists like Microsoft. Obviously Microsoft does pay it's workers better than Wal-Mart, but if it's good for consumers is another question.
We have two models here:
Wal-Mart: low wages - low prices - low profits
Microsoft: high wages (or rather high earnings) - high prices - high profits
Which is better?
Posted by: ivan | December 24, 2005 at 12:27 PM