Competition Among Retail Formats

30 Pages Posted: 8 Aug 2018

See all articles by Chaoqun Chen

Chaoqun Chen

Southern Methodist University (SMU) - Marketing Department

Date Written: July 22, 2018

Abstract

In this paper, I study how households allocate their budget for food and related items across different types of retailers. I construct a structural demand model that coherently characterizes both consumer expenditure and expenditure allocation among six retail formats. The model considers how price and assortments influence expen- diture allocations. To illustrate how my demand model can be applied in practice, I consider a situation faced by discount stores, during the Great Recession. In 2008, discount stores experienced a loss in share to other retail formats like warehouse clubs. I use my model to examine two different policies that discount stores could use to compete with other retail formats. First, I consider whether discount stores should compete by lowering prices. Second, I evaluate the effectiveness of introducing a new retail format that has smaller assortments. I find that introducing a small-size format is relatively more effective than competing with lower prices.

Keywords: retail, competition

Suggested Citation

Chen, Chaoqun, Competition Among Retail Formats (July 22, 2018). SMU Cox School of Business Research Paper No. 18-28. Available at SSRN: https://ssrn.com/abstract=3218030 or http://dx.doi.org/10.2139/ssrn.3218030

Chaoqun Chen (Contact Author)

Southern Methodist University (SMU) - Marketing Department ( email )

United States

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