Aggressive Growth in Retail: A Trade-Off Between Deterrence and Survival?
50 Pages Posted: 20 Mar 2017 Last revised: 14 Jun 2019
Date Written: June 12, 2019
We study the relationship between aggressiveness and survival under the context of retail entry. To evaluate this relationship, we first estimate the dynamic game with monthly data from the taco fast casual restaurant industry (i.e., Chipotle, Taco Cabana) in Texas during 1993 to 2015. The estimated model then allows us to conduct a series of counterfactual simulations to explore the extent to which a trade-off exists between aggression and survival. The results show that this trade-off can exist in certain conditions. More interestingly, we establish a set of qualifiers for aggressive entry to improve survival: (1) A rival's presence has to hurt the incumbent's profit enough to make preemption attractive, (2) the damage of the rival's presence on the firm's profit should not be too much (in the event that rival still enters), and (3) the incumbent has to be competitive enough so as to hurt its rival's profit sufficiently.
Keywords: Dynamic Structural Estimation; Entry Deterrence; First versus Late Mover Advantage; Location Intelligence; Industry Dynamics; Market Structure; Retail Performance; Retail Strategy
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