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Product variety and competition in the retail market for eyeglasses

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  • Randal Watson

Abstract

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.

Suggested Citation

  • Randal Watson, 2004. "Product variety and competition in the retail market for eyeglasses," Econometric Society 2004 North American Summer Meetings 298, Econometric Society.
  • Handle: RePEc:ecm:nasm04:298
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    Cited by:

    1. Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2008. "On the Effects of Consumer Search and Firm Entry in a Multiproduct Competitive Market," Marketing Science, INFORMS, vol. 27(3), pages 461-473, 05-06.
    2. Andrew Cohen & Michael Mazzeo, 2004. "Competition, product differentiation and quality provision: an empirical equilibrium analysis of bank branching decisions," Finance and Economics Discussion Series 2004-46, Board of Governors of the Federal Reserve System (U.S.).
    3. Guerra, Alexandre & Moita, Rodrigo, 2011. "Entradas e Bandeiras: A Estratégia de Interiorização das Cadeias de Fast Food no Brasil," Insper Working Papers wpe_247, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

    More about this item

    Keywords

    Product variety; entry models; spatial competition;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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