Does Wal-Mart Sell Inferior Goods?

A report from Emek Basker at the University of Missouri that looks at the quality of Wal-Mart's goods and has some major conclusions, namely: 

• Wal-Mart's prices are countercyclical relative to the rest of the economy. Wal-Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal-Mart selling "inferior goods" in the technical sense of the term - goods for which demand increases when income falls.
• When personal income falls, revenues at Wal-Mart rise. The income elasticity of demand for Wal-Mart's wares is approximately -0.72. Thus, if personal incomes fall by 2%, this would cause revenues at each of Wal-Mart's stores to increase, on average, by 1.44%.
• For the average consumer, shopping at Wal-Mart is abnormal. Wal-Mart's products exhibit a negative income elasticity and Target's demand exhibits a positive income elasticity. An upper bound on the income elasticity of demand for Wal-Mart's products is -0.5, with more realistic (still conservative) values closer to -0.7. For the average consumer, then, it appears that shopping at Target is perfectly normal, but shopping at Wal-Mart is not.

 
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