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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Leonardo Iacovone

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Working Papers

July 2011Supplier Responses to Wal-Mart's Invasion of Mexico
with Beata Smarzynska Javorcik, Wolfgang Keller, James R. Tybout: w17204
This paper examines the effect of Wal-Mart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Wal-Mart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Wal-Mart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with...

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