Econometrica: Jan 2011, Volume 79, Issue 1

The Diffusion of Wal‐Mart and Economies of Density

https://doi.org/10.3982/ECTA7699
p. 253-302

Thomas J. Holmes

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.

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Supplemental Material

Supplement to "The Diffusion of Wal-Mart and Economies of Density"

This file contains a data file of Wal-Mart stores and distribution centers.

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Supplement to "The Diffusion of Wal-Mart and Economies of Density"

This zip file contains the data set on payoffs to deviations.  It contains the gauss programs and output files used to estimate the bounds.

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Supplement to "The Diffusion of Wal-Mart and Economies of Density"

This contains the data and programs used to calculate sales, operating profits, and distribution miles for any given configuration of WalMart stores in any given year.

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