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Comparison and one-stop shopping after big-box retail entry: A spatial difference-in-difference analysis

Author

Listed:
  • Han, Mengije

    (Dalarna University)

  • Mihaescu, Oana

    (HUI Research)

  • Li, Yujiau

    (Dalarna University)

  • Rudholm, Niklas

    (HUI Research)

Abstract

This paper empirically measures the potential spillover effects of big-box retail entry on the productivity of incumbent retailers in the entry regions, and investigates whether the effects differ depending on 1) if the entry is in a rural or urban area, and 2) if the incumbent retailers are within retail industries selling substitute or complement goods to those found in IKEA. To identify the IKEA-entry effect, a difference-in-difference model is suitable, but traditionally such estimators neglect the possibility that firms’ sales are determined by a process with spatially interactive responses. If ignored, these responses may cause biased estimates of the IKEA entry effect due to spatial heterogeneity of the treatment effect. One objective of this paper is thus to propose a spatial difference-in-difference estimator accounting for possible spatial spillover effects of IKEA entry. Particular emphasis is placed on the development of a suitable weight matrix accounting for the spatial links between firms, where we allow for local spatial interactions such that the outcome of observed units depends both on their own treatment as well as on the treatment of their neighbors. Our results show that for complementary goods retailers (or onestop shopping retailers) in Haparanda and Kalmar, productivity increased by 38% and 19%, respectively, due to IKEA entry. No statistically significant effects were found for the entries in Karlstad and Gothenburg, indicating that it is mainly incumbents in smaller entry regions that benefit from IKEA entry. Also, for incumbent retailers selling substitute (or comparison shopping) goods no significant effects were found in any of the entry regions, indicating that it is mainly retailers selling complementary goods that benefit from IKEA entry. Finally, our results also show that ignoring the possibility of spatially correlated treatment effects in the regression models reduces the estimated impact of the IKEA entries in Haparanda and Kalmar on productivity in one-stop shopping retail firms with 3 and 0.6 percentage points, respectively.

Suggested Citation

  • Han, Mengije & Mihaescu, Oana & Li, Yujiau & Rudholm, Niklas, 2017. "Comparison and one-stop shopping after big-box retail entry: A spatial difference-in-difference analysis," HUI Working Papers 123, HUI Research.
    • Handle: RePEc:hhs:huiwps:0123
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    3. Rudholm, Niklas & Li, Yuijao & Kenneth, Carling, 2018. "How Does Big-Box Entry Affect Labor Productivity in Durable Goods Retailing? A Synthetic Control Approach," HUI Working Papers 130, HUI Research.
    4. Grimmer, Louise, 2021. "Drivers and barriers for city shopping: Perspectives from retailers and consumers in regional Australia," Journal of Retailing and Consumer Services, Elsevier, vol. 61(C).
    5. Sven-Olov Daunfeldt & Oana Mihaescu & Niklas Rudholm, 2022. "The Decline of Small Cities: Increased Competition from External Shopping Malls or Long-Term Negative Trends?," International Regional Science Review, , vol. 45(2), pages 225-257, March.
    6. Nilsson, Helena, 2020. "IKEA entry - Effects on firms in retail and hospitality," HFI Working Papers 11, Institute of Retail Economics (Handelns Forskningsinstitut).
    7. Yujiao Li & Johan Håkansson & Oana Mihaescu & Niklas Rudholm, 2019. "Agglomeration economies in urban retailing: are there productivity spillovers when big-box retailers enter urban markets?," Applied Economics Letters, Taylor & Francis Journals, vol. 26(19), pages 1586-1589, November.
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    9. Niklas Rudholm & Yujiao Li & Kenneth Carling, 2022. "How does big-box retail entry affect labor productivity in durable goods retailing? A synthetic control approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(1), pages 89-117, August.
    10. Demidova, Olga, 2021. "Methods of spatial econometrics and evaluation of government programs effectiveness," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 64, pages 107-134.
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    13. Zhang, Shaopeng & Wang, Xiaohong, 2022. "Does innovative city construction improve the industry–university–research knowledge flow in urban China?," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
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    More about this item

    Keywords

    Big-box entry; Production functions; Retail productivity; Retail entry subsidies; Spatial difference-in-difference;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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