UConn Advance - September 8, 2008 - Recent grad wins thesis awards

A recent UConn graduate has won national recognition for research that examined how the expansion of Wal-Mart Supercenter stores into food retail markets affected prices at competing grocery stores.

Rebecca Cleary, who earned her master’s in agricultural and resource economics, received the 2008 “Outstanding Master’s Thesis Award” from the Agricultural & Applied Economics Association (AAEA).

Her thesis, “Is Wal-Mart Good for Competition? Evidence from Milk Prices” found that the expansion of the retail giant’s Supercenters increases competition and is good for consumers.

Cleary’s thesis also won the Outstanding Thesis Award from the Northeastern Agricultural and Resource Economics Association, a regional professional association, and the Food Distribution Research Society’s 2008 William Applebaum Memorial Scholarship Award for a master’s thesis.

“Wal-Mart’s retailing strategy has always intrigued me,” says Cleary, now a Ph.D. student at the University of Wisconsin-Madison. “They have such a simple concept, but it’s so innovative.”

“The AAEA is the flagship academic organization of our profession,” says Professor Rigoberto Lopez, head of the agricultural and resource economics department, who was Cleary’s advisor. “We’re very proud of Becky. She’s won the top three awards in our field.

“Becky selected a relevant and timely topic,” he adds, “and used rigorous economic analysis to examine Wal-Mart’s pricing strategies.”

The largest retailer in the world, Wal-Mart pursues a low pricing strategy that has helped trim consumers’ household budgets for many years.

The addition of Supercenters to its portfolio made groceries more affordable to lower income households, but also sparked debate about the impact on competing grocery stores.

Rebecca Cleary, a recent master’s graduate, wrote her thesis on the impact of Wal-Mart Supercenters.

Photo supplied by AAEA

Some policy-makers have opposed Wal-Mart by trying to impose “living-wage” laws on the retailer or limit its entry into markets via “anti-big box” legislation.

Since 1988, Wal-Mart has opened an average of 100 Supercenters per year. Yet research was needed to determine the effect of the rapid expansion of these stores on the pricing strategies of existing food-retailing competitors.

Cleary’s study focused on Wal-Mart’s entry into the Dallas/Fort Worth market and the subsequent shifts in the demand for and price of milk as a way to determine whether the increased competitive pressure on existing supermarkets resulted in lowered prices.

Using scanner data for milk from the Dallas/Fort Worth supermarket chains, provided by UConn’s Food Policy Marketing Center, Cleary found that Wal-Mart’s entry “disciplined the collusive non-competitive milk pricing behavior of existing supermarkets” and caused a 22.5 percent drop in milk prices over the six-year period examined in the study.

“This study documents strong consumer gains upon Wal-Mart entry into markets, in spite of its negative effect on existing businesses,” Cleary wrote.

“In effect Wal-Mart acts like a trust buster, forcing prices down, and causes incumbents to adopt more competitive pricing behavior.”

Legislation to limit Wal-Mart Supercenter expansion or prohibit its future entry in a market, she added, “would favor incumbent [stores] at the expense of consumers.”

Recent grad wins thesis awards

by David Bauman - September 8, 2008