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Product variety and competition in the retail market for eyeglasses

Author

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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. Richards, Timothy J. & Hamilton, Stephen F. & Patterson, Paul M., 2010. "Spatial Competition and Private Labels," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), pages 1-26, August.
    2. Andrew M. 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.
    4. 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.
    5. Richards, Timothy J., 2004. "Price and Product-Line Rivalry Among Supermarket Retailers," Working Papers 28535, Arizona State University, Morrison School of Agribusiness and Resource Management.

    More about this item

    Keywords

    Product variety; entry models; spatial competition;
    All these keywords.

    JEL classification:

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

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