Wal-Mart and Price Convergence among U.S. Cities

News Story: March 18, 2016

The Jack Welch College of Business Research Seminar Series will host Southern Illinois University Economics Professor AKM Mahbub Morshed on Thursday, March 24, at 12:30 p.m. in room W348 at the Martire Business & Communications Center. The title of Morshed’s talk is, “Wal-Mart and Price Convergence among US Cities.”  

This study examines the role played by Wal-Mart in price convergence among US cities. Though market structure is regarded as an important determinant of price convergence in both theoretical and empirical analyses, the role played by rapidly-expanding ‘big-box’ chain-stores such as Wal-Mart in this regard is completely over-looked. The possible symmetry in costs and mark-up among Wal-Mart stores, and their influence over the city level prices motivate us to test if their presence helps price convergence among US cities. After controlling for distance, local costs such as wage and rent, and city and time specific fixed effects this study finds that prices are significantly closer in two cities if they have Wal-Mart than if none or only one of them has Wal-Mart. Though the results are mostly robust to the analysis using disaggregate price data and sub-samples, they are more pronounced for grocery items than non-grocery items. Moreover, our regional analysis uncovers the regional variations in the effect of Wal-Mart on price convergence, and Wal-Mart’s more prominent role in inter-region rather than intra-region price convergence.