The costs of growth: Accelerated growth and crowd-out in the Mexican supermarket industry

Research output: Contribution to journalArticle

Abstract

Retailers expand gradually into new markets. Policies that aim to facilitate or delay this process must understand how firms differ in their ability to expand and how firms’ expansions affect that of others. I propose a model that quantifies various explanations for gradual expansion, with focus on expansion costs: those due to the rate of outlet expansion. I estimate the model using entry patterns in Mexico's supermarket industry for the years 1996–2006. I find firms’ incur a 33% higher cost for opening the marginal store during the expansion period rather than at the end of it. I simulate how the industry would have grown under lesser expansion costs and find that, although the industry would have added more stores on average, there are outcomes in which certain firms’ accelerated expansion would have crowded out other firms’ expansion, resulting in fewer long-run stores and lower consumer welfare.

Original languageEnglish (US)
Pages (from-to)1-52
Number of pages52
JournalInternational Journal of Industrial Organization
Volume61
DOIs
StatePublished - Nov 1 2018

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Costs
Industry
Crowd-out
Supermarkets

Keywords

  • Entry
  • Gradual growth
  • Mexico
  • Supermarkets
  • Walmart

ASJC Scopus subject areas

  • Industrial relations
  • Engineering (miscellaneous)
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management

Cite this

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abstract = "Retailers expand gradually into new markets. Policies that aim to facilitate or delay this process must understand how firms differ in their ability to expand and how firms’ expansions affect that of others. I propose a model that quantifies various explanations for gradual expansion, with focus on expansion costs: those due to the rate of outlet expansion. I estimate the model using entry patterns in Mexico's supermarket industry for the years 1996–2006. I find firms’ incur a 33{\%} higher cost for opening the marginal store during the expansion period rather than at the end of it. I simulate how the industry would have grown under lesser expansion costs and find that, although the industry would have added more stores on average, there are outcomes in which certain firms’ accelerated expansion would have crowded out other firms’ expansion, resulting in fewer long-run stores and lower consumer welfare.",
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