papers

Dollar stores are small-box discount stores that offer a broad range of products at low prices with a limited selection within each product category. Major dollar store chains in the U.S. have experienced exponential growth in the past two decades, outgrowing Walmart and McDonald’s in terms of store locations. In this paper, I discuss three potential channels through which dollar stores can affect consumer welfare: (1) dollar stores charge lower prices for the same products than their competitors and offer a higher share of private-brand products, which generate disproportionate sales; (2) dollar store entry leads to exits of grocery stores and changes the local market structure; and (3) low-income households are more exposed to dollar store entry than high-income households. I propose a nested-CES demand model to quantify the welfare impact of dollar store entry through these channels for households of different income groups. I find that between 2006 and 2019, on average, dollar store entry improved household welfare, albeit with large heterogeneity within and across household income groups. The variation in the welfare impact of dollar store entry across households is driven by differences in households’ preferences (across income groups), their baseline retail conditions, and the number of dollar store entries. A decomposition of household welfare change due to dollar store entry reveals the different channels sustaining the welfare gains of low- vs. high-income households. Low-income households benefit from both the change in retail variety and product characteristics at dollar stores, whereas the welfare gain enjoyed by high-income households comes entirely from their value for product characteristics at dollar stores. Furthermore, this paper highlights the declining appeal of dollar stores as they continue to enter local markets and corroborates the need for existing placed-based dispersal policies for dollar stores.

A common tactic to estimate willingness-to-travel exploits variation in the relative proximity of consumers to supplier locations. The validity of these estimates relies on the exogeneity of that consumer-supplier distance. We argue that distance to suppliers is endogenous because suppliers strategically choose locations to target consumers; we introduce a novel instrument to address this form of endogeneity. Using geolocation data from millions of smartphones, we estimate consumer preferences for specific retail chains across income groups and regions. We show that accounting for distance endogeneity significantly alters willingness-to-travel measures. Contrary to the prevailing “retail apocalypse” narrative, we find that consumer surplus per trip to general merchandise stores did not significantly decline from 2010 to 2019. For the lowest-income consumers, the expansion of national chains, particularly dollar stores, nearly compensates for the closure of traditional department stores and regional chains. Notably, failing to account for distance endogeneity leads to the erroneous conclusion that lower-income households experienced statistically significant consumer surplus declines.