Better Together? Retail Chain Performance Dynamics in Store Expansion before and after Mergers
38 Pages Posted: 9 Oct 2014 Last revised: 13 Apr 2015
Date Written: April 13, 2015
This paper evaluates how mergers affect profitability of retail chains. We estimate a dynamic model of retail expansion using data on convenience-store chains in Japan. Our estimation allows for the presence of serially correlated unobservables that evolve endogenously and selection biases in sales. The estimates reveal that although the merged firm enhanced efficiency in sunk costs of expansion, underlying unobserved performance dynamics for the merged entity did not improve following the merger, and such changes in dynamics varied across markets. A counterfactual simulation reveals the slower growth of profitability is associated with the merged firm's diminished ability to retain profitability.
Keywords: Dynamic discrete choice; Entry; Industry dynamics; Learning-by-doing; Market concentration; Merger analysis; Particle filter; Revenue regression; Serial correlation; Retailing.
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