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Does Organizational Form Drive Competition? Evidence from Coffee Retailing

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  • Brian Adams
  • Joshua Gans
  • Richard Hayes
  • Ryan Lampe

Abstract

This article examines patterns of entry and exit in a relatively homogeneous product market to investigate the impact of entry on incumbent firms and market structure. In particular, we are interested in whether the organizational form of entrants matters for the competitive decisions of incumbents. We assess the impact of chain stores on independent retailers in the Melbourne coffee market using annual data on the location and entry status of 4,768 coffee retailers between 1991 and 2010. The long panel enables us to include market fixed effects to address the endogeneity of store locations. Logit regressions indicate that chain stores have no discernible effect on the exit or entry decisions of independent stores. However, each additional chain store increases the probability of another chain store exiting by 2.5 percentage points, and each additional independent cafe increases the probability of another independent cafe exiting by 0.5 percent. These findings imply that neighboring independents and chains operate almost as though they are in separate markets. We offer additional analysis suggesting consumer information as a cause of this differentiation.

Suggested Citation

  • Brian Adams & Joshua Gans & Richard Hayes & Ryan Lampe, 2016. "Does Organizational Form Drive Competition? Evidence from Coffee Retailing," NBER Working Papers 22548, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22548
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    1. Shih‐Chuan Lin & Yoo Ri Kim, 2021. "Heterogeneous effects of hotel ownership structure changes on localized market competition using multilevel mixed‐effect analyses," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 808-820, June.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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