Estimating Explaining Reallocation's Apparent Negative Contribution to Growth

We explain a puzzle from two recent meta-analyses that cover 25 countries and claim to show that inputs systematically move from higher-value to lower-value activities despite strong aggregate labor productivity growth (ALP). These papers use variants of the Baily, Hulten and Campbell (1992) decomposition of ALP to show that the reallocation covariance term is negative in all but two countries and the reallocation between term is negative in nine countries and weakly positive in most others. We decompose ALP using three micro-level data sets from Chile, Colombia, and Slovenia and show the same puzzle holds. We show that the ALP between term can be decomposed into a term related to reallocation and a term related to the change in the total number of .ms, the latter of which often works to reduce the total between term in our data. We also show these ALP patterns can arise because of heterogeneity in labor and capital, unobserved output prices, or capacity utilization, but controlling for them only marginally helps to explain away the ALP reallocation puzzles in our micro-level data sets. We show that there is no puzzle when one decomposes aggregate productivity growth in the terms of National Accounts, as inputs in the aggregate move from low to high value activities in 36 of our 39 country-year observations. We conclude that there is a fundamental difference in re- allocation measured by the ALP decomposition and that measured by the decomposition of National Accounts growth.

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

A Structural Analysis of Entry Order, Performance, and Geography: The Case of the Convenience-Store Industry in Japan

Despite a large literature that documents a market-share advantage for pioneering firms, entry-order effects on economic profits and their implications for marketing strategy are largely unknown due to limitations in accounting profits and costs. This paper empirically examines the entry-order effects on profit components: revenues, entry costs, expansion costs, and variable costs. Unlike conventional analyses, this paper leverages a structural approach that does not require information on accounting profits and costs. By assuming that forward-looking firms maximize economic profits under strategic interactions, the approach infers cost and revenue parameters such that these parameters justify the observed entry and expansion behaviors as equilibrium outcomes of a dynamic game. I apply the revealed-preference argument to the panel data set from the convenience-store industry in Japan on store counts and revenues for 47 geographic markets for years 1984 through 2010. Variation in entry order, store counts, and revenues across markets, firms, and years, together with the dynamic equilibrium model, allows researchers to uncover the entry-order effects on revenue and cost functions. I find whereas a firm earns 5.0% more revenues at the outlet level relative to the next entrant, the next entrant earns a reduction in variable costs per outlet and expansion costs per outlet by 5.7% and 15.9%, respectively. The difference in entry-order effects on profits accounts for 10.1% of the differences in total economic profits across two leading firms, 7-Eleven and LAWSON. Based on the interplay between competition, market growth, and geography, simulation analyses reveal that a firm may initially benefit from postponing its market-entry consideration, but the advantage could disappear in around 25 years. The benefits for a late entrant are larger if the market is growing and distant from the firm's and competitor firms' parent companies' headquarters

Estimating a Model of Strategic Store-Network Choice

Competition among multi-store chains is common in retail industries. This paper proposes a method for estimating 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 ensuring 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 (economies 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.entry; merger; retail location; supermodular game; zoning regulation

Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa

This paper examines the impacts of the merger of two multi-store …rms, using new crosssectional data from the convenience-store industry in Okinawa, Japan. I propose a general methodology for estimating a game of network choice by two multi-store …rms. I use latticetheoretical results to deal with the huge number of possible network choices. I integrate the entry model with post-entry outcome data, while correcting for the selection of entrants by simulations. Parameter estimates …nd the acquirer of a hypothetical merger of two chains would increase its number of stores in the city center in Okinawa but would decrease its number in suburbs. The trade-o ¤ of cost savings and lost revenues from clustering its own stores plays a central role in explaining this seemingly odd result. I also examine the impacts of eliminating the zoning regulation introduced in 1968, which has been a major urban policy issue