Download this Paper Open PDF in Browser

Estimating Network Economies in Retail Chains: A Revealed Preference Approach

45 Pages Posted: 22 Mar 2010  

Paul B. Ellickson

University of Rochester - Simon Business School

Stephanie Houghton

Texas A&M University

Christopher Timmins

Duke University - Department of Economics

Date Written: March 2010

Abstract

We measure the effects of chain economies, business stealing, and heterogeneous firms' comparative advantages in the discount retail industry. Traditional entry models are ill-suited for this high-dimensional problem of strategic interaction. Building upon recently developed profit inequality techniques, our model admits any number of potential rivals and stores per location, an endogenous distribution network, and unobserved (to the econometrician) location attributes that may cause firms to cluster their stores. In an application, we find that Kmart and Target benefit most from local chain economies; Wal-Mart's advantage is more global. We explore these results with counterfactual simulations highlighting these offsetting effects.

Suggested Citation

Ellickson, Paul B. and Houghton, Stephanie and Timmins, Christopher, Estimating Network Economies in Retail Chains: A Revealed Preference Approach (March 2010). NBER Working Paper No. w15832. Available at SSRN: https://ssrn.com/abstract=1574651

Paul B. Ellickson (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Stephanie Houghton

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

Christopher D. Timmins

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1809 (Phone)
919-684-8974 (Fax)

Paper statistics

Downloads
31
Abstract Views
262