A recent paper by Basker, to be published early next year, carries the title "Selling a Cheaper Mousetrap: Entry and Competition in the Retail Sector." Relying on a Wal-Mart case study, Basker quantifies how the entry of the giant retailer affects the operations of already existing smaller retailers, especially their pricing policies. She gathered lots of data, including prices on 13 items sold by Wal-Mart in 160 cities, with dollars-and-cents calculated before and after Wal-Mart's entry into each of those markets. Basker obtained the price per product information from the American Chamber of Commerce Research Association, focusing on 13 items from among the 50 available. The average population in Basker's city sample is about 200,000; the median population is about 100,000, approximately Columbia's size.

She found a price decline ranging from 6 percent to 10 percent on drugstore-type items, such as toothpaste, shampoo, tissues, detergent and pain relievers (8 to 14 percent in small cities, 4 to 5 percent in large cities, where additional retailers moderate the impact). Convenience store items, such as alcoholic beverages (beer, wine, liquor), soft drinks and cigarettes, demonstrated more variable price changes; at times, they did not decline after Wal-Mart's arrival, partly because many Wal-Marts do not stock those items. The big retailer appeared to have no effect on men's clothing (dress shirts, casual slacks, underwear) prices, partly because Wal-Mart carries only a small number of clothing lines, leaving much of that market to other retailers.

Basker compared her findings to other price surveys, especially one by UBS Warburg Global Equity Research conducted in four large markets, one without a Wal-Mart (Sacramento, Calif.) and three with Wal-Marts (Las Vegas, Houston and Tampa, Fla.). She determined that "competitors' prices in Wal-Mart cities were lower than Sacramento prices for most, but not all, items; on average, drugstore prices were 15 percent lower in Wal-Mart cities, but wine prices were 10 percent higher."

Testing for variation by city size seemed necessary to Basker. "Large cities are likely to have more competitive retail markets not only because of the larger numbers of stores but because of compositional differences in market structure." For instance, she found evidence from other researchers that "large cities have a smaller ratio of chain stores to independent stand-alone stores than small cities, suggesting retailers in large cities have less monopoly power." So Basker performed statistical tests on the differential effect of Wal-Mart entry into small cities and large cities. As theory predicts, her findings suggest that "Wal-Mart entry has a larger impact on small cities than on large ones." Ever the cautious researcher, however, Basker notes different retailers in smaller cities are affected differently:

"Theory suggests that stores selling the closest substitutes to Wal-Mart [merchandise], for example, those that are located near Wal-Mart or that are similar in other dimensions -- will have the most elastic price responses to Wal-Mart entry. Stores located far from Wal-Mart are likely to have very small price responses, because their clientele's cross-price elasticity of demand -- how much demand for an item (say breakfast cereal) changes when the price of some of other item changes (say milk for the breakfast cereal) -- will be low."

Basker learned that after it enters a market, Wal-Mart can influence retail prices in two ways -- its interactions with importers and manufacturers, and its competitive strategy at the local level. Basker decided to focus on the local level. "Wal-Mart's entry into a given market can lower prices by increasing the competitive pressure incumbents and future entrants face," she says.