Working Paper: NBER ID: w22548
Authors: Brian Adams; Joshua Gans; Richard Hayes; Ryan Lampe
Abstract: This article examines patterns of entry and exit in a relatively homogeneous product market to investigate the impact of entry on incumbent firms and market structure. In particular, we are interested in whether the organizational form of entrants matters for the competitive decisions of incumbents. We assess the impact of chain stores on independent retailers in the Melbourne coffee market using annual data on the location and entry status of 4,768 coffee retailers between 1991 and 2010. The long panel enables us to include market fixed effects to address the endogeneity of store locations. Logit regressions indicate that chain stores have no discernible effect on the exit or entry decisions of independent stores. However, each additional chain store increases the probability of another chain store exiting by 2.5 percentage points, and each additional independent cafe increases the probability of another independent cafe exiting by 0.5 percent. These findings imply that neighboring independents and chains operate almost as though they are in separate markets. We offer additional analysis suggesting consumer information as a cause of this differentiation.
Keywords: competition; organizational form; coffee retailing; entry and exit
JEL Codes: L11; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Chain store entry (L81) | Exit probability of independent cafes (C69) |
| Chain store entry (L81) | Exit probability of other chain stores (C69) |
| Independent cafes (N83) | Exit probability of competing independent cafes (C69) |