Retailer Price Competition and Assortment Differentiation: Evidence from Entry Lotteries

39 Pages Posted: 17 Jun 2024

See all articles by Brett Hollenbeck

Brett Hollenbeck

University of California, Los Angeles (UCLA) - Anderson School of Management

Sylvia Hristakeva

Cornell SC Johnson College of Business

Kosuke Uetake

Yale School of Management

Date Written: May 01, 2024

Abstract

This paper studies the relationship between the degree of local competition and retail markups as well as retailer product selection decisions. We leverage a unique circumstance in the context of the legalized cannabis industry in Washington, where a lottery system to allocate licenses to retailers generated random variation in local competition. This natural experiment helps address the endogeneity issues commonly encountered in causal analyses of competitive effects. Additionally, our access to detailed retail and wholesale pricing enables the direct assessment of markups, a measure often unavailable to researchers. The analyses yield three key findings: first, an increase in the number of nearby competitors is associated with lower retailer markups, although the marginal effect decreases as competition intensifies. Second, retailers respond to greater competition by differentiating their assortments. Third, this differentiation strategy helps mitigate the intensity of price competition among retailers.

Keywords: Retail competition, markups, firm differentiation, product variety, legal marijuana

Suggested Citation

Hollenbeck, Brett and Hristakeva, Sylvia and Uetake, Kosuke, Retailer Price Competition and Assortment Differentiation: Evidence from Entry Lotteries
(May 01, 2024). Available at SSRN: https://ssrn.com/abstract=4857371 or http://dx.doi.org/10.2139/ssrn.4857371

Brett Hollenbeck

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Sylvia Hristakeva (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Kosuke Uetake

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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