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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.

Suggested Citation

  • 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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    1. Junichi Suzuki, 2013. "Land Use Regulation As A Barrier To Entry: Evidence From The Texas Lodging Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 495-523, May.
    2. Emek Basker & Shawn Klimek & Pham Hoang Van, 2008. "Supersize It: The Growth of Retail Chains and the Rise of the "Big Box" Retail Format," Working Papers 08-23, Center for Economic Studies, U.S. Census Bureau, revised Sep 2011.
    3. Shiko Maruyama, 2009. "Estimating Sequential-move Games by a Recursive Conditioning Simulator," Discussion Papers 2009-01, School of Economics, The University of New South Wales.
    4. Matthew L. Freedman & Renáta Kosová, 2012. "Agglomeration, product heterogeneity and firm entry," Journal of Economic Geography, Oxford University Press, vol. 12(3), pages 601-626, May.
    5. Han, Lu & Hong, Seung-Hyun, 2011. "Testing Cost Inefficiency Under Free Entry in the Real Estate Brokerage Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 564-578.
    6. Paul B. Ellickson & Stephanie Houghton & Christopher Timmins, 2010. "Estimating Network Economies in Retail Chains: A Revealed Preference Approach," NBER Working Papers 15832, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Bergh, Andreas & Nilsson, Therese, 2014. "Is Globalization Reducing Absolute Poverty?," World Development, Elsevier, vol. 62(C), pages 42-61.
    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. 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.
    4. 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.
    5. Mitsukuni Nishida & Nathan Yang, 2014. "Better Together? Retail Chain Performance Dynamics in Store Expansion Before and After Mergers," Working Papers 14-08, NET Institute.
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    7. Yi Deng & Gabriel Picone, 2019. "An empirical analysis of entry and location decisions by bars and liquor stores," Empirical Economics, Springer, vol. 57(5), pages 1751-1782, November.

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