2 research outputs found
Estimating a Model of Strategic Store-Network Choice
Competition among multi-store chains is common in retail industries.
This paper proposes a method for eliminating a model of strategic
store-network choices by two chains. In contrast to previous studies, I
allow chains to not only choose which markets to enter but also how many
stores to open in each of those markets. I use lattice-theoretical
results to deal with the huge number of possible network choices. I show
that a chain's net trade-off between costs and benefits from clustering
their stores in a market can be either positive or negative while still
enduring the existence of an equilibrium. By doing so, the model
provides a way to freely estimate this within-market effect from the
data. Incorporating revenue data allows us to interpret parameters in
monetary units and to decompose the within-market effect into cost
savings from clustering stores (economics of density) and lost revenues
from competition with one's own stores (own-chain business-stealing
effect). I apply the technique to a new data set from the
convenience-store industry in Okinawa, Japan. Parameter estimates
confirm that own chain business-stealing is an important consideration
for a chain. I then use the estimated structural model to perform two
counterfactual analyses. First, I consider a hypothetical merger of two
chains and find that the merger would decrease the number of stores and
total sales, and raise the acquirer's profits thereby reallocating
surplus from consumers to the acquirer. Second, I examine how
eliminating the zoning regulation introduced in Japan in 1968, which has
been at the forefront of urban policy debates, affects store-network choices
Estimating a Model of Strategic Store-Network Choice
Competition among multi-store chains is common in retail industries.
This paper proposes a method for eliminating a model of strategic
store-network choices by two chains. In contrast to previous studies, I
allow chains to not only choose which markets to enter but also how many
stores to open in each of those markets. I use lattice-theoretical
results to deal with the huge number of possible network choices. I show
that a chain's net trade-off between costs and benefits from clustering
their stores in a market can be either positive or negative while still
enduring the existence of an equilibrium. By doing so, the model
provides a way to freely estimate this within-market effect from the
data. Incorporating revenue data allows us to interpret parameters in
monetary units and to decompose the within-market effect into cost
savings from clustering stores (economics of density) and lost revenues
from competition with one's own stores (own-chain business-stealing
effect). I apply the technique to a new data set from the
convenience-store industry in Okinawa, Japan. Parameter estimates
confirm that own chain business-stealing is an important consideration
for a chain. I then use the estimated structural model to perform two
counterfactual analyses. First, I consider a hypothetical merger of two
chains and find that the merger would decrease the number of stores and
total sales, and raise the acquirer's profits thereby reallocating
surplus from consumers to the acquirer. Second, I examine how
eliminating the zoning regulation introduced in Japan in 1968, which has
been at the forefront of urban policy debates, affects store-network choices