Too Large or Too Small? Returns to Scale in a Retail Network

CERGE-EI Working Paper No. 273

50 Pages Posted: 8 Feb 2006

See all articles by František Brázdik

František Brázdik

Czech National Bank; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Viliam Druska

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: September 2005

Abstract

Performance in retailing is usually evaluated by routine use of ratio analysis, but due to the univariate nature of this simple management tool there are many drawbacks to the obtained results. Therefore, the aim of this study is to demonstrate successful employment of parametric and non-parametric methods for evaluating technical performance in retailing. We also show how to utilize DEA results, when parametric methods do not satisfactorily perform due to their strict distributional assumptions. Results of this study are used to optimize the retail chain of a European mobile telecommunication network operator by providing estimates of and recommendations for improvements in the productive efficiency of the chain operations. Estimates of store-level technical and scale efficiency indicate that a majority of stores are operating in the decreasing returns to scale region of the production possibility set. The employed methodology allows us to identify input excesses and to address a means of reducing them.

Keywords: Data envelopment analysis application, linear programming, efficiency, retail units

JEL Classification: C14, C44, D24, L81

Suggested Citation

Brázdik, František and Druska, Viliam, Too Large or Too Small? Returns to Scale in a Retail Network (September 2005). CERGE-EI Working Paper No. 273. Available at SSRN: https://ssrn.com/abstract=881742 or http://dx.doi.org/10.2139/ssrn.881742

František Brázdik (Contact Author)

Czech National Bank ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Viliam Druska

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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