Essays on the value of locations in the retail industry
An, So Hyun
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My dissertation empirically studies firms' strategic behavior in the retail food industry, focusing on the value of desirable locations. In Chapter 2, I study the effect of in-store promotion strategies on consumer demand in the ready-to-serve wet soup category in supermarkets. By building a flexible consumer demand model, I analyze the effect of in-store promotions on price elasticity. Using the information on the in-store promotions in a scanner dataset, I find that in-store displays make consumers less sensitive to price changes while store flyers and price tags make consumer demand more elastic to price changes. This result implies that in-store displays benefit smaller manufacturers relatively more, leading to a less concentrated product market. In Chapter 3, I investigate promotional allowances in order to study the value of in-store displays in the supermarket industry. Building upon the consumer demand model in Chapter 2, I build a structural model of profit maximization by both retailers and manufacturers. I find that the manufacturers in the ready-to-serve wet soup category provide retailers with monetary incentives in exchange for in-store promotion opportunities. On average, in-store displays cost roughly 8 cents per product to manufacturers. I also find that promotional allowance practices make in-store displays unaffordable to smaller manufacturers. As a counterfactual analysis, I study the effect of banning promotional allowances in a representative market and provide important implications for antitrust issues. In Chapter 4, I study the ownership allocation problem in the franchising industry. Specifically, I empirically investigate multi-unit franchising in a fast food franchise. Multi-unit franchising, owning several units of the same chain, has been prevalent in the fast food industry. In this chapter, I present the ownership allocation pattern by utilizing a large dataset with ownership information on businesses in the state of Texas. By focusing on a company without any company-owned units, I find that not only economies of scale but also economies of density in the unit network are important in understanding franchising ownership allocation.