Does Organizational Form Drive Competition? Evidence from Coffee Retailing

39 Pages Posted: 17 Aug 2016 Last revised: 28 Jan 2017

Brian Adams

Bureau of Labor Statistics

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

Richard Hayes

Melbourne Business School - University of Melbourne

Ryan Lampe

California State University, East Bay - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 27, 2017

Abstract

This article examines patterns of entry and exit in a relatively homogeneous product market to investigate the impact of entry on incumbent firms and market structure. In particular, we are interested in whether the organizational form of entrants matters for the competitive decisions of incumbents. We assess the impact of chain stores on independent retailers in the Melbourne coffee market using annual data on the location and entry status of 4,768 coffee retailers between 1991 and 2010. The long panel enables us to include market fixed effects to address the endogeneity of store locations. Logit regressions indicate that chain stores have no discernible effect on the exit or entry decisions of independent stores. However, each additional chain store increases the probability of another chain store exiting by 2.5 percentage points, and each additional independent cafe increases the probability of another independent cafe exiting by 0.5 percent. These findings imply that neighboring independents and chains operate almost as though they are in separate markets. We offer additional analysis suggesting consumer information as a cause of this differentiation.

Keywords: entry, exit, product differentiation, chains, reputation, retailing

JEL Classification: L11

Suggested Citation

Adams, Brian and Gans, Joshua S. and Hayes, Richard and Lampe, Ryan, Does Organizational Form Drive Competition? Evidence from Coffee Retailing (January 27, 2017). Rotman School of Management Working Paper No. 2823543. Available at SSRN: https://ssrn.com/abstract=2823543

Brian Adams

Bureau of Labor Statistics ( email )

2 Massachusetts Avenue, NE
Washington, DC 20212
United States

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Richard Hayes

Melbourne Business School - University of Melbourne ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Ryan Lampe

California State University, East Bay - Department of Economics ( email )

25800 Carlos Bee Blvd.
Hayward, CA 94542
United States

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