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Estimating Network Economies in Retail Chains: A Revealed Preference Approach

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  • Paul B. Ellickson
  • Stephanie Houghton
  • Christopher Timmins

Abstract

We measure the effects of chain economies, business stealing, and heterogeneous firms' comparative advantages in the discount retail industry. Traditional entry models are ill-suited for this high-dimensional problem of strategic interaction. Building upon recently developed profit inequality techniques, our model admits any number of potential rivals and stores per location, an endogenous distribution network, and unobserved (to the econometrician) location attributes that may cause firms to cluster their stores. In an application, we find that Kmart and Target benefit most from local chain economies; Wal-Mart's advantage is more global. We explore these results with counterfactual simulations highlighting these offsetting effects.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15832.

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Date of creation: Mar 2010
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Publication status: published as "Estimating Network Economies in Retail Chains: A Revealed Preference Approach," with Stephanie Houghton and Paul Ellickson. RAND Journal of Economics. Vol.44, No.2 (2013):169-193.
Handle: RePEc:nbr:nberwo:15832

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Cited by:
  1. Sumon Datta & K. Sudhir, 2013. "Does reducing spatial differentiation increase product differentiation? Effects of zoning on retail entry and format variety," Quantitative Marketing and Economics, Springer, vol. 11(1), pages 83-116, March.
  2. Jeremy Fox & Natalia Lazzati, 2013. "Identification of discrete choice models for bundles and binary games," CeMMAP working papers CWP04/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Maican, Florin & Orth, ┬┤Matilda, 2013. "Entry Regulations, Product Differentiation and Determinants of Market Structure," Working Paper Series 984, Research Institute of Industrial Economics.
  4. Victor Aguirregabiria & Gustavo Vicentini, 2012. "Dynamic Spatial Competition Between Multi-Store Firms," Working Papers tecipa-457, University of Toronto, Department of Economics.
  5. Nathan Yang, 2011. "An Empirical Model of Industry Dynamics with Common Uncertainty and Learning from the Actions of Competitors," Working Papers 11-16, NET Institute.
  6. Sumon Datta & K. Sudhir, 2012. "Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety," Cowles Foundation Discussion Papers 1851, Cowles Foundation for Research in Economics, Yale University, revised Sep 2012.
  7. Mitsukuni Nishida, 2012. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Economics Working Paper Archive 594, The Johns Hopkins University,Department of Economics.
  8. Peter Arcidiacono & Patrick Bayer & Jason R. Blevins & Paul B. Ellickson, 2012. "Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition," NBER Working Papers 18449, National Bureau of Economic Research, Inc.
  9. Andres Aradillas-Lopez & Adam Rosen, 2013. "Inference in ordered response games with complete information," CeMMAP working papers CWP33/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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