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http://ssrn.com/abstract=2002302
 
 

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Demand Externalities from Co-Location


Boudhayan Sen


Yale School of Management

Jiwoong Shin


Yale School of Management

K. Sudhir


Yale School of Management; Yale University-Department of Economics; Yale University - Cowles Foundation

February 9, 2012

Cowles Foundation Discussion Paper No. 1850
Yale SOM Working Paper

Abstract:     
We illustrate an approach to measure demand externalities from co-location by estimating household level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of gas station, we find significant demand externalities; on average a household that buys gas has 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cement the loyalty of store-loyal households. The grocery spillover effects are significant for traditional grocery products, but 23% larger for convenience stores. Thus co-location of a new category impacts both inter-format competition with respect to convenience stores (selling the new category) and intra-format competition with respect to other supermarkets (selling the existing categories).

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Date posted: February 10, 2012 ; Last revised: March 7, 2012

Suggested Citation

Sen, Boudhayan and Shin, Jiwoong and Sudhir, K., Demand Externalities from Co-Location (February 9, 2012). Cowles Foundation Discussion Paper No. 1850; Yale SOM Working Paper. Available at SSRN: http://ssrn.com/abstract=2002302 or http://dx.doi.org/10.2139/ssrn.2002302

Contact Information

Boudhayan Sen
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
Jiwoong Shin
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
HOME PAGE: http://faculty.som.yale.edu/JiwoongShin/
K. Sudhir (Contact Author)
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-3289 (Phone)
203-432-3003 (Fax)

Yale University-Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
Yale University - Cowles Foundation ( email )
Box 208281
New Haven, CT 06520-8281
United States

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