Why are Wal-Mart and Target Next-Door Neighbors?

37 Pages Posted: 10 Sep 2014

Multiple version iconThere are 2 versions of this paper

Date Written: September 5, 2014

Abstract

One of the most notable changes in the U.S. retail market over the past twenty years has been the rise of Big Box stores, retail chains characterized by physically large stores selling a wide range of consumer goods at discount prices. A growing literature has examined the impacts of Big Box stores on other retailers and consumers, but relatively little is known about how Big Box stores choose locations. Because Big Box stores offer highly standardized products and compete primarily on price, it is likely that they will seek to establish spatial monopolies, far from competitor stores. In this paper, I examine where new Big Box stores locate with respect to three types of existing establishments: own-firm stores, other retailers in the same product space (competitors), and retailers in other product spaces (complements). Results indicate that new Big Box stores tend to avoid existing own-firm stores and locate near complementary Big Box stores. However, there is little evidence that new Big Boxes avoid competitors. Firms in the same product space may not be perfect substitutes, or firms may prefer to share consumers in a desirable location rather than cede the entire market to competitor firms.

Keywords: Retail location; spatial competition; agglomeration; Big Box stores

JEL Classification: L81, R12, R32

Suggested Citation

Schuetz, Jenny, Why are Wal-Mart and Target Next-Door Neighbors? (September 5, 2014). Available at SSRN: https://ssrn.com/abstract=2493405 or http://dx.doi.org/10.2139/ssrn.2493405

Jenny Schuetz (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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