Essays on the value of locations in the retail industry
OA Version
Citation
Abstract
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.