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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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    File URL: http://cowles.econ.yale.edu/P/cd/d18b/d1851.pdf
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    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1851.

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    Length: 49 pages
    Date of creation: Mar 2012
    Date of revision: Sep 2012
    Handle: RePEc:cwl:cwldpp:1851
    Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
    Phone: (203) 432-3702
    Fax: (203) 432-6167
    Web page: http://cowles.econ.yale.edu/
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    Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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

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    1. Michaela Draganska & Michael Mazzeo & Katja Seim, 2009. "Beyond plain vanilla: Modeling joint product assortment and pricing decisions," Quantitative Marketing and Economics, Springer, vol. 7(2), pages 105-146, June.
    2. Victor Aguirregabiria & Pedro Mira, 2005. "A Genetic Algorithm for the Structural Estimation of Games with Multiple Equilibria," Boston University - Department of Economics - Working Papers Series WP2005-001, Boston University - Department of Economics.
    3. Jonathan Levin (Stanford University) & Pat Bajari & Lanier Benkard, 2004. "Estimating Dynamic Models of Imperfect Competition," Econometric Society 2004 North American Winter Meetings 627, Econometric Society.
    4. Elie Tamer & Federico Ciliberto, 2004. "Market Structure and Multiple Equilibria in Airline Markets," Econometric Society 2004 North American Winter Meetings 517, Econometric Society.
    5. Kasahara, Hiroyuki & Shimotsu, Katsumi, 2009. "Sequential Estimation of Structural Models with a Fixed Point Constraint," Discussion Papers 2009-18, Graduate School of Economics, Hitotsubashi University.
    6. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation Of Dynamic Discrete Games," Working Papers wp2004_0413, CEMFI.
    7. Junichi Suzuki, 2010. "Land Use Regulation as a Barrier to Entry: Evidence from the Texas Lodging Industry," Working Papers tecipa-412, University of Toronto, Department of Economics.
    8. 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.
    9. Mitsukuni Nishida, 2008. "Estimating a Model of Strategic Store-Network Choice," Working Papers 08-27, NET Institute, revised Nov 2008.
    10. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
    11. Heski Bar-Isaac & Guillermo Caruana & Vicente Cuñat, 2009. "Costly search and design," Economics Working Papers 1155, Department of Economics and Business, Universitat Pompeu Fabra.
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