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Research Papers
Primary Field: Industrial Organization
Store Dynamics, Differentiation and Determinants of Market Structure (with Matilda Orth), pdf (Draft: 2012-01)
Abstract:
Substantial entry and exit and a trend toward larger but fewer stores constitute
a major structural change in retail markets in the last few decades. To study
the determinants of market structure in retail markets, this paper uses a dynamic
structural oligopoly model of entry and exit that allows for store-level heterogeneity.
Using a rich data set on all retail food stores in Sweden, we estimate entry cost of
potential entrants and sell-off values for exit for small and large stores. We find
empirical evidence of type competition. An additional large store in the market de-
creases the profits of large stores about seven percentage points more than for small
stores. For small stores, the average entry cost is about two times larger than the
sell-off value of exit. Using structural estimates, we evaluate the impact of different
policies on the cost structure for each store type and market structure dynamics.
Small stores are negatively affected by more efficient incumbents, whereas large
stores incur higher entry costs due to other factors such as higher rent or cost of
buildings. The findings have a direct link to competition policy because the major-
ity of OECD countries have entry regulations, and the consequences of regulation
in retail food are frequently debated among policy makers in the EU.
Productivity Dynamics and the Role of Big-Box Entrants in Retailing, (with Matilda Orth), pdf (Draft: 2011-12)
Abstract:
Entry of large ("big-box") stores along with a drastic fall in the total number of stores is
a striking trend in retail markets. We use a dynamic structural model to estimate retail
productivity in a local market setting. In particular, we provide a general strategy of
how to measure the causal effect of entry of large stores on productivity separate from
demand. To control for endogeneity of large entrants, we use political preferences. Using
detailed data on all retail food stores in Sweden, we find that large entrants force low
productivity stores to exit and surviving stores to increase their productivity.
Productivity increases most among incumbents in the bottom part of the productivity distribution,
and then declines with the productivity level of incumbents. When controlling for prices,
the impact of large entrants on productivity increases substantially. Our findings suggest
that large entrants play a crucial role for driving productivity growth.
From Boom to Burst and Back Again: A Dynamic Analysis in IT Services, pdf (Draft: 2011-01)
Abstract: Aggregate shocks in demand such as the burst of the 2001 dot-com bubble affect
firms’ behavior and, therefore, the market structure. This paper proposes a fully
dynamic oligopoly model to evaluate the impact of aggregate demand shocks on
entry and exit costs as well as on investment and labor adjustment costs in IT
services. The empirical application builds on an eight year panel dataset that
includes every IT service firm in Sweden. The paper finds higher fixed investment
and labor adjustment costs for software but lower for operational services after
the dot-com bust. The entry costs for software were six times lower than for operational
services, which might explain the large number of entrants in software.
Entrants are found less productive than incumbents and net exit contributed the
most to productivity growth in the IT services after the dot-com bust. For policy
makers, the changes in cost structure give key information about industry dynamics
and its impact on high-skilled jobs.
Industry Dynamics and Format Repositioning in Retail, pdf (Draft: 2011-03)
Abstract:
In differentiated product markets, when firms are affected by demand shocks, they
may react by repositioning their products, which in turn affects market structure.
This paper proposes a dynamic oligopoly model to estimate the costs of repositioning
store formats together with sunk costs of entry and sell-off values of exit in
the retail industry. The model gives important information about driving forces
behind format changes and how such repositioning can be linked to entry and
exit. Using data from Sweden, the results indicate that both repositioning and
entry costs increase with market size, and their growth decreases when moving to
larger markets. Small markets have higher sell-off values than repositioning costs,
but large entry costs. The difference between higher entry and lower repositioning
costs explains why the number of observed repositionings is higher than the number
of entrants. Since entry is regulated in most of OECD countries, repositioning
costs and their link to competition have important implications for competition
policy.
Productivity Dynamics, R&D, and Competitive Pressure, pdf (Draft: 2011-12)
Abstract:
This paper proposes a dynamic structural model to estimate productivity when
productivity evolves as an endogenous process and firms decide how much to invest
depending on the competitive pressure they face. Using data from Sweden, this
paper finds that open market policies and entrepreneurship policies complement
R&D policies and are important drivers of the competitiveness of established firms.
Conservative estimates suggest that optimal investment is at least 0.7 to 2.5 times
the actual investment in R&D for a median firm and 2 to 4 times for a firm located
in the upper part of the productivity growth distribution.
A Dynamic Analysis of Retail Productivity, (with Matilda Orth) pdf (Draft: 2012-01)
Abstract:
The retail sector has dramatically changed by the adoption of information tech-
nology and the trend towards larger but fewer stores. In this paper, we use recent
methods to decompose aggregate productivity growth in retail, i.e., we quantify
the relative importance of entrants, exits, and incumbents. To estimate total fac-
tor productivity, we use a dynamic structural model controlling for unobserved
prices, subsector, and local market characteristics. Using data on all retail firms
in Sweden and a dynamic decomposition framework, we find that incumbents and
exit of low productive firms play an important role for retail productivity growth.
Secondary Field: Empirical International Finance
Real Exchange Rate Adjustment In European Transition Countries, (with
Richard J. Sweeney )
pdf(version:2008-01)
Costs and Benefits of Using a Battery of Unit-Root Tests, (with
Richard J. Sweeney
pdf(version: 2008-09)
Popular Research Report, Handelns Utvecklingsrad, 2009
- Is there a Wal-Mart effect without Wal-Mart? An analysis of
of productivity in Swedish retail (Finns det en Wal-Mart effekt
utan Wal-Mart? En analys av produktiviteten i svensk detaljhandel)
(with Matilda Orth) Report to Handelns Utvecklingsrad(2009:1).
Download
Consulting Report, The Swedish Civil Aviation Authority, 2008
- Product competition in the airline industry (Vem konkurrerar med
vem pa flygmarknaden? En studie av flygmarknadens segment)
(with Matilda Orth) Report to the Swedish Civil Aviation
Authority (2008:2). Download
Research Paper(s) in Progress
Understanding productivity differences in software industry
The impact of demand shocks on R&D in innovative industries
Product differentiation: The Case of Store Format in Swedish Food Retail
Improving Computation of Large Entry Models with Spatial Differentiation
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