Empirical Entry Games with Complementarities: An Application to the Shopping Center Industry
Journal of Marketing Research, Forthcoming
72 Pages Posted: 13 Aug 2009 Last revised: 4 Apr 2012
Date Written: August 31, 2011
This paper proposes a strategic model of entry that allows for positive and negative spillovers among firms. The model is applied to a novel dataset containing information about the store configurations of all US regional shopping centers and is used to quantify the magnitude of inter-store spillovers. The author addresses the estimation difficulties that arise due to the presence of multiple equilibria by formulating the entry game as a Mathematical Problem with Equilibrium Constraints (MPEC). While this paper constitutes the first attempt to use this direct optimization approach to address a specific empirical problem, the method can be used in a wide range of structural estimation problems. The empirical results support the agglomeration and clustering theories that predict firms may have incentives to co-locate despite potential business stealing effects. It is shown that the firms’ negative and positive strategic effects help predict both how many firms can operate profitably in a given market and the firm-types configurations. The relative magnitude of such effects varies substantially across store-types.
Keywords: Entry, Spillovers, Shopping Centers, Incomplete information game, Direct optimization approach, MPEC
JEL Classification: C6, L0, L1, L2, L8, M3
Suggested Citation: Suggested Citation