Product variety and competition in the retail market for eyeglasses
I analyze an original dataset on the display inventories of several hundred eyewear retailers to study how firms' product-range choices depend on separation from rivals in geographically-differentiated markets. A two-stage estimation approach is used to model firms' initial location decisions and their subsequent choices of product variety, borrowing methodologies from Seim (2002) and Mazzeo (2000). Per-firm variety varies non-linearly with the degree of local competition. Holding fixed the total number of rivals in a market, a retailer stocks the widest variety when it is near several other competitors. Its product range is somewhat smaller if it faces no local competition, and substantially smaller if it faces four or more nearby rivals. This suggests that business-stealing eventually dominates any clustering effects when there is intense competition in a neighbourhood.
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