Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety

49 Pages Posted: 10 Dec 2010 Last revised: 10 Sep 2012

See all articles by Sumon Datta

Sumon Datta

Krannert School of Management, Purdue University

K. Sudhir

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

Date Written: January 10, 2012

Abstract

This paper investigates the impact of spatial zoning restrictions on retail market outcomes. We estimate a structural model of entry, location and format choice across a large number of markets in the presence of zoning restrictions. The paper contributes to the literature in three ways: First, the paper demonstrates that the omission of zoning restrictions in the extant literature on entry and location choice leads to biased estimates of the factors affecting market potential and competitive intensity. Second, the cross-market variations in zoning regulations helps us test and provide evidence for the theory that constraints on spatial differentiation will lead to greater product differentiation. Finally, we provide qualitative insight on how zoning impacts retail entry and format variety; in particular we evaluate the impact of prototypical zoning arrangements such as "centralized," "neighborhood," and "outskirt" zoning on entry and format variety.

Keywords: Product Variety, Zoning, Entry, Retail Competition, Discrete Games, Multiple Equilibria

JEL Classification: C5, C70, L13, L81, M31

Suggested Citation

Datta, Sumon and Sudhir, K., Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety (January 10, 2012). Cowles Foundation Discussion Paper No. 1851. Available at SSRN: https://ssrn.com/abstract=1722949 or http://dx.doi.org/10.2139/ssrn.1722949

Sumon Datta

Krannert School of Management, Purdue University ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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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