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Unobserved heterogeneity in dynamic games: Cannibalization and preemptive entry of hamburger chains in Canada

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  • Mitsuru Igami
  • Nathan Yang

Abstract

We develop a dynamic entry model of multi‐store oligopoly with heterogeneous markets, and estimate it using data on hamburger chains in Canada (1970–2005). Because more lucrative markets attract more entry, firms appear to favor the presence of more rivals. Thus unobserved heterogeneity across geographical markets creates an endogeneity problem and poses a methodological challenge in the estimation of dynamic games, which we address by combining the procedures proposed by Kasahara and Shimotsu (2009), Arcidiacono and Miller (2011), and Bajari, Benkard, and Levin (2007). The results suggest that the omission of unobserved market heterogeneity attenuates the estimates of competition, and the trade‐off between cannibalization and preemption is an important factor behind the evolution of market structure.

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  • Mitsuru Igami & Nathan Yang, 2016. "Unobserved heterogeneity in dynamic games: Cannibalization and preemptive entry of hamburger chains in Canada," Quantitative Economics, Econometric Society, vol. 7(2), pages 483-521, July.
    • Handle: RePEc:wly:quante:v:7:y:2016:i:2:p:483-521
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    Cited by:

    1. Dmitrii Tereshchenko, 2022. "Competition among Russian Grocery Stores: Database on St. Petersburg, 2017–2021," HSE Working papers WP BRP 258/EC/2022, National Research University Higher School of Economics.
    2. Couture, Victor & Handbury, Jessie, 2020. "Urban revival in America," Journal of Urban Economics, Elsevier, vol. 119(C).
    3. Pavan, Giulia & Pozzi, Andrea & Rovigatti, Gabriele, 2020. "Strategic entry and potential competition: Evidence from compressed gas fuel retail," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    4. Raphael Corbi & Fabio Miessi Sanches, 2022. "Church Competition, Religious Subsidies and the Rise of Evangelicalism: a Dynamic Structural Analysis," Working Papers, Department of Economics 2022_09, University of São Paulo (FEA-USP).
    5. Robert Clark & Yiran Gong, 2021. "Why Do Some New Products Fail? Evidence from the Entry and Exit of Vanilla Coke," Working Paper 1475, Economics Department, Queen's University.
    6. Victor Aguirregabiria & Allan Collard-Wexler & Stephen P. Ryan, 2021. "Dynamic Games in Empirical Industrial Organization," NBER Working Papers 29291, National Bureau of Economic Research, Inc.
    7. Jason R. Blevins & Ahmed Khwaja & Nathan Yang, 2018. "Firm Expansion, Size Spillovers, and Market Dominance in Retail Chain Dynamics," Management Science, INFORMS, vol. 64(9), pages 4070-4093.
    8. Eric Van den Steen, 2018. "The Strategy in Competitive Interactions," Strategy Science, INFORMS, vol. 3(4), pages 574-591, December.
    9. Brian Adams & Joshua Gans & Richard Hayes & Ryan Lampe, 2018. "Does Organisational Form Drive Competition? Evidence from Coffee Retailing," The Economic Record, The Economic Society of Australia, vol. 94(305), pages 155-167, June.
    10. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    11. Paul S. Koh, 2022. "Stable Outcomes and Information in Games: An Empirical Framework," Papers 2205.04990, arXiv.org, revised May 2023.
    12. Samano, Mario & Santugini, Marc, 2020. "Long-run market configurations in a dynamic quality-ladder model with externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    13. Elçin Ergin & Mehmet Gümüş & Nathan Yang, 2022. "An Empirical Analysis of Intra‐Firm Product Substitutability in Fashion Retailing," Production and Operations Management, Production and Operations Management Society, vol. 31(2), pages 607-621, February.
    14. Victor Couture & Jessie Handbury, 2017. "Urban Revival in America, 2000 to 2010," NBER Working Papers 24084, National Bureau of Economic Research, Inc.

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