Big-Box Store Expansion and Consumer Welfare (with Justin Leung)

Abstract: Supercenters and warehouse clubs have grown rapidly in the US in recent decades. These big-box retail establishments are physically large to enable one-stop shopping, offering a broad range of product categories with relatively low prices. In this paper, we study how the entry of these big-box stores affect household consumption and welfare. We first present an event study of the store entries of four major big-box retail chains to provide empirical evidence that households change various dimensions of their shopping behavior, such as product varieties per shopping trip and prices paid, in ways that are strongly consistent with store characteristics. We then develop a novel multi-store multi-category choice model to quantify and disentangle the effects of product variety, prices, and other store characteristics on consumer welfare. We show that households benefit substantially from consuming in supercenters relative to competing retailers, highlighting the importance of the store format.