McDonald's and KFC in China: Competitors or Companions?

Posted: 10 Jul 2015

See all articles by Qiaowei Shen

Qiaowei Shen

University of Pennsylvania - Marketing Department

Ping Xiao

Deakin University - Faculty of Business and Law

Abstract

In this paper, we study the entry and expansion decisions of McDonald's and KFC in China using an originally assembled data set on the two chains' expansion in the China market from their initial entry up to year 2007. We analyze how the presence of a rival affects each firm's strategies. The results indicate that a rival's presence has a net positive effect on a chain's expansion decision. We focus on testing two possible explanations for a positive rival impact: market learning and demand expansion. First, we derive a set of theoretical predictions on how a chain's optimal expansion decision would react to its rival's expansion patterns when market learning versus demand expansion is the driving force of the rival's positive influence. The empirical analysis based on these predictions consistently suggests that market learning is more likely to explain the positive effect of KFC on McDonald's and that demand expansion is more plausible with McDonald's positive spillover on KFC. In other words, the results are consistent with the presence of KFC signaling market demand potential and growth to McDonald's and the presence of McDonald's helping to cultivate consumer taste and generate demand for Western fast food, which benefits KFC.

Keywords: entry, market learning, demand expansion, emerging market, fast-food chains

Suggested Citation

Shen, Qiaowei and Xiao, Ping, McDonald's and KFC in China: Competitors or Companions?. Marketing Science, Vol. 33, No. 2, 2014; pp. 287-307; DOI: 10.1287/mksc.2013.0824. Available at SSRN: https://ssrn.com/abstract=2416326

Qiaowei Shen (Contact Author)

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Ping Xiao

Deakin University - Faculty of Business and Law ( email )

Burwood, Victoria 3215
Australia

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