How do "Big-Box " Entrants Influence Competition and Productivity in local food retailing?

Products from the food sector fulfill our needs for basic survival and are purchased by almost everyone in the society. The major structural change in retail markets during the last few decades is in fact the entry of large (“bigbox”) stores, along with a drastic fall in the number of stores. The most striking example is the expansion of Wal-Mart, which has been found to greatly lower retail prices, and increase exit, of retail stores in the U.S., the “Wal-Mart effect”. For instance, the number of single-store retailers in the U.S. declined 55 % from 1963 to 2002 (Basker 2007). Retail markets in Europe also follow the “big-box ” trend, though on a smaller scale, with for example Carrefour, Metro, Schwartz, and Tesco. Foster et. al (2006) find evidence that the aggregate labor productivity growth in U.S. retail is mainly driven by reshuffling of resources from less to more productive stores as chains replace small stores with large ones. Although there is an emerging literature about retail markets, the impact of this structural change on productivity has not been given much attention. In Sweden there is a lack of knowledge regarding the competition effects caused by large entrants (Swedish Competition Authority, 2004:2). The role of large entrants has a direct link to competition policy because the majority of OECD countries have entry regulations. The main rationale is that new entrants generate both positive and negative externalities, which require careful evaluation by local authorities. Advantages, such as productivity gains, lower prices, and wider product assortments, stand in contrast to drawbacks, in terms of fewer stores, and environmental issues. Th