Source: Dissertation Abstracts International, Volume: 71-01, Section: A, page: 0254.

Adviser: K. Sudhir.

This dissertation studies the spatial configuration of grocery stores across markets and makes three crucial contributions to the literature on retail entry and location choice. First, we introduce a novel approach to obtain spatial zoning data at a national level using publicly available digital land cover datasets. Extant empirical models of store location choice ignore zoning restrictions in residential areas and underestimate the impact of high population and income on store profits. Also, the inability to differentiate spatially in markets with small and concentrated retail zones is misattributed to low competition.

Second, we incorporate revenue and cost characteristics at a location that are common knowledge for firms but which are unobserved by the researcher. For this we augment entry and location choice data with store revenue data and decompose the reduced form profit function in extant models into revenue and cost. Common unobserved revenue and cost shocks often enable competing stores to co-locate so that their exclusion underestimates the extent of competition. The profit decomposition also gives better insights about the drivers of store location choice.

Finally, we disentangle the agglomeration-dilierentiation trade-off: A firm may co-locate with a competitor to increase volume (competitor is a "friend" who can draw more customers to the location with strategic agglomeration) or it may locate fur away to reduce price competition (competitor is an "enemy" from who one should spatially differentiate). For this we decompose store revenue into consumer shopping location choice based volume and spatial competition based price. Entry, location choice and revenue of all stores, and price data from a store chain are used for inference.

Our estimates and counterfactual analysis show that the agglomeration benefit is strong. Although zoning has little direct effect on store co-location, small and concentrated retail zones influence firms to take advantage of the agglomeration benefit which explains a surprisingly large fraction of observed co-location. This interaction between zoning restrictions and agglomeration benefit has a discontinuous effect on location choices. This highlights the value of a structural model in understanding how changes in market environment can cause strategic firms to respond in complex and non-linear ways.