Working Paper: CEPR ID: DP8534
Authors: Otto Toivanen; Michael Waterson
Abstract: Understanding the development of chainstores is important given the large GDP share of services and the continuing importance of chains in bringing these services to market. Service chains provide a puzzle because they take a long time to develop even when there are obvious expansion opportunities. We study the spread of McDonalds in Britain. We find cannibalization on the demand side and economies of density both within and between markets on the cost side, and evidence of learning by doing at the firm level. Within-period diseconomies of scale at the firm level help explain the lengthy opening pattern.
Keywords: Cost of entry; Diffusion; Economies of density; Economies of scale; Entry and expansion
JEL Codes: L10; L22; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economies of density (R12) | cost side (D61) |
| number of outlets opened (L81) | firm-level costs (D21) |
| cumulative number of opened outlets (L81) | pace of entry (Y20) |
| expected discounted sales (C69) | probability of entering new markets (M13) |
| number of outlets (L68) | local cost-side economies of density (R11) |
| number of outlets (L68) | diseconomies of density on demand side (R22) |