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Burger King and McDonald’s: Where’s the Spillover?

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  • Nathan Yang

Abstract

This paper studies how spillover effects from competitors’ choices affect a firm’s decision to open a store. Using panel data from the UK’s fast food industry, I propose and estimate a game of entry under incomplete information that incorporates spillover effects between firms’ entry decisions. A positive spillover is identified for Burger King -- increasing the stock of existing McDonald’s by one outlet increases Burger King’s estimated equilibrium probability of opening a new store by approximately 18 percentage points. Furthermore, the estimated model suggests that this spillover affects Burger King’s variable profit, as opposed to its fixed cost of entry. It is less clear whether this externality matters for McDonald’s.

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  • Nathan Yang, 2012. "Burger King and McDonald’s: Where’s the Spillover?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(2), pages 255-281, July.
    • Handle: RePEc:taf:ijecbs:v:19:y:2012:i:2:p:255-281
    DOI: 10.1080/13571516.2012.684929
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    References listed on IDEAS

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    Cited by:

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    2. Philip G. Gayle & Zijun Luo, 2015. "Choosing between Order-of-Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and McDonald's Restaurant Outlets," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 129-151, March.
    3. Andrew Eckert & Heather Eckert, 2014. "Regional Patterns in Gasoline Station Rationalization in Canada," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 99-122, March.
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    7. Joaquin Sanchez & Carmen Abril & Michael Haenlein, 2020. "Competitive spillover elasticities of electronic word of mouth: an application to the soft drink industry," Journal of the Academy of Marketing Science, Springer, vol. 48(2), pages 270-287, March.

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