Demand Externalities from Co-Location
AbstractWe illustrate an approach to measure demand externalities from co-location by estimating household level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of gas station, we find significant demand externalities; on average a household that buys gas has 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cement the loyalty of store-loyal households. The grocery spillover effects are significant for traditional grocery products, but 23% larger for convenience stores. Thus co-location of a new category impacts both inter-format competition with respect to convenience stores (selling the new category) and intra-format competition with respect to other supermarkets (selling the existing categories).
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1850.
Length: 35 pages
Date of creation: Feb 2012
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-14 (All new papers)
- NEP-GEO-2012-03-14 (Economic Geography)
- NEP-MKT-2012-03-14 (Marketing)
- NEP-URE-2012-03-14 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dora Gicheva & Justine Hastings & Sofia Villas-Boas, 2007.
"Revisiting the Income Effect: Gasoline Prices and Grocery Purchases,"
NBER Working Papers
13614, National Bureau of Economic Research, Inc.
- Gicheva, Dora & Hastings, Justine & Villas-Boas, Sofia B, 2008. "Revisiting the Income Effect: Gasoline Prices and Grocery Purchases," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7087m1p6, Department of Agricultural & Resource Economics, UC Berkeley.
- Paul Klemperer & A. Jorge Padilla, 1997. "Do Firms' Product Lines Include Too Many Varieties?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 472-488, Autumn.
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