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Spatial differentiation in the supermarket industry: The role of common information

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  • A. Yeşim Orhun

    (University of Michigan)

Abstract

In this paper, I investigate the geographic location decisions of supermarkets to infer their tradeoffs between locating close to favorable demand conditions and differentiating themselves geographically from rivals. The model is based on a discrete-choice game between two types of supermarkets, and incorporates firm uncertainty arising from firm- and location-level private information as well as researcher uncertainty arising from location-level common information. Thus the model addresses the concern that firms’ actions may be based on factors that are unobservable to the researcher, thus correlated conditional on observables. The estimates reflect a significant level of common information. Importantly, I find that ignoring unobserved location heterogeneity results in biased estimates of both the competitive effects and the effects of location-specific observables on profits. Counterfactual predictions are therefore misleading if unobserved location heterogeneity is unaccounted for.

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  • A. Yeşim Orhun, 2013. "Spatial differentiation in the supermarket industry: The role of common information," Quantitative Marketing and Economics (QME), Springer, vol. 11(1), pages 3-37, March.
    • Handle: RePEc:kap:qmktec:v:11:y:2013:i:1:d:10.1007_s11129-012-9123-x
    DOI: 10.1007/s11129-012-9123-x
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    3. Dmitrii Tereshchenko, 2022. "Competition among Russian Grocery Stores: Database on St. Petersburg, 2017–2021," HSE Working papers WP BRP 258/EC/2022, National Research University Higher School of Economics.
    4. Sumon Datta & K. Sudhir, 2013. "Does reducing spatial differentiation increase product differentiation? Effects of zoning on retail entry and format variety," Quantitative Marketing and Economics (QME), Springer, vol. 11(1), pages 83-116, March.
    5. Cai, Xiaowei & Volpe, Richard J. & Schroeter, Christiane & Mancino, Lisa, 2017. "Food Retail Market Structure and Produce Purchases in the U.S," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258471, Agricultural and Applied Economics Association.
    6. Takeshi Ebina & Noriaki Matsushima, 2017. "Product differentiation and entry timing in a continuous-time spatial competition model with vertical relations," ISER Discussion Paper 1009, Institute of Social and Economic Research, Osaka University.
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    8. Mehmet Ali Soytaş & Damla Durak Uşar & Meltem Denizel, 2022. "Estimation of the static corporate sustainability interactions," International Journal of Production Research, Taylor & Francis Journals, vol. 60(4), pages 1245-1264, February.
    9. Victor Aguirregabiria & Junichi Suzuki, 2015. "Empirical Games of Market Entry and Spatial Competition in Retail Industries," Working Papers tecipa-534, University of Toronto, Department of Economics.
    10. Sumon Datta & K. Sudhir, 2023. "The Agglomeration-Differentiation Tradeoff in Spatial Location Choice," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 10(1), pages 1-25, December.
    11. Goetz, Daniel, 2023. "Telemedicine competition, pricing, and technology adoption: Evidence from talk therapists," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    12. Xiaowei Cai & Richard Volpe & Christiane Schroeter & Lisa Mancino, 2018. "Food retail market structure and produce purchases in the United States," Agribusiness, John Wiley & Sons, Ltd., vol. 34(4), pages 756-770, October.
    13. A. Ronald Gallant & Han Hong & Ahmed Khwaja, 2018. "The Dynamic Spillovers of Entry: An Application to the Generic Drug Industry," Management Science, INFORMS, vol. 64(3), pages 1189-1211, March.
    14. Mitsukuni Nishida & Nathan Yang, 2014. "Better Together? Retail Chain Performance Dynamics in Store Expansion Before and After Mergers," Working Papers 14-08, NET Institute.
    15. Jason R. Blevins & Ahmed Khwaja & Nathan Yang, 2018. "Firm Expansion, Size Spillovers, and Market Dominance in Retail Chain Dynamics," Management Science, INFORMS, vol. 64(9), pages 4070-4093.
    16. Mitsukuni Nishida, 2015. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Marketing Science, INFORMS, vol. 34(1), pages 20-38, January.
    17. Erhao Xie, 2018. "Inference in Games Without Nash Equilibrium: An Application to Restaurants, Competition in Opening Hours," Staff Working Papers 18-60, Bank of Canada.
    18. Kim, Sunghoon & DeSarbo, Wayne S. & Chang, Won, 2021. "Note: A new approach to the modeling of spatially dependent and heterogeneous geographical regions," International Journal of Research in Marketing, Elsevier, vol. 38(3), pages 792-803.
    19. Kim, Hyunchul & Kim, Kyoo il, 2017. "Estimating store choices with endogenous shopping bundles and price uncertainty," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 1-36.
    20. Chloe Kim Glaeser & Marshall Fisher & Xuanming Su, 2019. "Optimal Retail Location: Empirical Methodology and Application to Practice," Service Science, INFORMS, vol. 21(1), pages 86-102, January.
    21. Mehmet Ali Soytaş & Damla Durak Uşar, 2017. "Role of Strategic Interactions in Corporate Sustainability Decisions: An Empirical Investigation," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 6(1), pages 17-46, January.
    22. Che-Lin Su, 2014. "Estimating discrete-choice games of incomplete information: Simple static examples," Quantitative Marketing and Economics (QME), Springer, vol. 12(2), pages 167-207, June.

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    More about this item

    Keywords

    Product competition; Retail competition; Location choice; Discrete games; Common information;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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