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Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety

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Abstract

This paper investigates the impact of spatial zoning restrictions on retail market outcomes. We estimate a structural model of entry, location and format choice across a large number of markets in the presence of zoning restrictions. The paper contributes to the literature in three ways: First, the paper demonstrates that the omission of zoning restrictions in the extant literature on entry and location choice leads to biased estimates of the factors affecting market potential and competitive intensity. Second, the cross-market variations in zoning regulations helps us test and provide evidence for the theory that constraints on spatial differentiation will lead to greater product differentiation. Finally, we provide qualitative insight on how zoning impacts retail entry and format variety; in particular we evaluate the impact of prototypical zoning arrangements such as "centralized," "neighborhood," and "outskirt" zoning on entry and format variety.

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  • 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.
    • Handle: RePEc:cwl:cwldpp:1851
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d18/d1851.pdf
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    6. Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, June.
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    12. William A. Fischel, 2004. "An Economic History of Zoning and a Cure for its Exclusionary Effects," Urban Studies, Urban Studies Journal Limited, vol. 41(2), pages 317-340, February.
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    1. repec:eee:joreco:v:26:y:2015:i:c:p:1-13 is not listed on IDEAS
    2. repec:eee:ijrema:v:33:y:2016:i:1:p:107-122 is not listed on IDEAS

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    Keywords

    Product Variety; Zoning; Entry; Location Choice; Retail Competition; Discrete Games; Multiple Equilibria; Structural Modeling;

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