Costco Causes Inflation: How?

July 22, 2011 4:16 am

We spotted a study with some surprising results –

“But a new study suggests that at least some of the nation’s rise in food prices is not the fault of the Fed. It’s Costco.
The bulk retailer, which generally charges as much as 45% less than other stores, seems like an odd target to pin inflation. But a study published this week by the National Bureau of Economic Research found the opening of a Costco tended to drive up grocery prices in the surrounding area. The Costco inflation effect is particularly surprising because it is the opposite of Walmart, which generally causes competing stores to lower their prices.

The study, which is titled Competing with Costco and Sam’s Club: Wharehouse Club Entry and Grocery Prices, looked at what effect the opening of a Costco had on grocery prices in nearby supermarkets. The authors found that on average customers who continued to shop at the supermarkets near a Costco tended to spend 3% more on groceries than they did before the bulk retailer opened. The Costco Inflation effect was generally larger in smaller towns.”

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