‘Big data’ refers to datasets whose size is beyond the typical database and analytics software tools to capture, store, manage, and analyze. This chapter describes the opportunities and challenges that ‘big data’ bring to academic research in economics and marketing in retail and distribution. Several data sources are described, as well as methodologies for analyzing them and opportunities for linking information from multiple high-volume, high-velocity sources, including purchase data, Internet search data, network and unstructured data, and consumer location data.
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William Hickman and Julie Holland Mortimer
Estimates of demand are identified from variation in the choice sets that consumers face and the corresponding purchase probabilities for individual products. Retail settings often provide an opportunity to observe variation in consumer choice sets that arises not only through changes in observable product characteristics, such as price, but also through changes in product availability. We review the literature that develops methods for estimating demand in these settings, with emphasis on two mechanisms through which product availability may vary: product assortment decisions, and stockout events. We also briefly discuss variation in availability that may arise from limited consumer information.
Roger R. Betancourt
The first part of this chapter explains the role of distribution services in understanding important features of the evolution of retailing in the first decade of the twenty-first century. Their main features as outputs of retail institutions enhance our understanding of the evolution of Walmart and big-box retailers, warehouse clubs such as Costco, limits of Internet channels, and features of shopping centers. Their role underlying the demand for retail products enhance our ability to use and interpret scanner data in the estimation of cost of living indexes and results with externalities generated through advertising by industry associations and Internet channels. Both demand and supply features of distribution services play a role in determining customer satisfaction in retail industries and in revealing neglected aspects of productivity analysis in retailing. In the second part, the chapter explains the role of distribution services in understanding the impact of information and communication technologies on the evolution of retailing and distribution in the twenty-first century. These technologies (ICT) are critical in allowing the separation of consumption, distribution and production of distribution services across space. Spatial separability with respect to distribution services, in particular accessibility of location to acquire the product and breadth and depth of assortments, provides the basis for the powerful economic impact of the Internet in many industries, for example, Amazon´s role in book distribution. Furthermore, this separability combined with the difficulties in separating the cost of distribution from the cost of production in the case of industries where the products sold are core services lead to important aspects of relational contracts prevalent in business format retail franchises. Both parts are integrated through a discussion of a number of novel organizational forms arising in twenty-first century retailing and distribution which are a consequence of this spatial separability of distribution services. At least one feature of this process, illustrated by home delivery and sometimes called customization quality, applies to all service sectors as a result of ICT penetration.
Anthony Dukes and Tansev Geylani
This chapter explores the implications of dominant retailers for marketing channels – the system through which manufacturers distribute their products to consumers. The emergence of a few dominant retailers has altered the way in which members of the marketing channel make decisions. The chapter first presents an economic framework to explore the source of retail dominance. It then explores how several key decisions (for example, product quality and assortment, prices, market data collaboration, and advertising) taken within the marketing channel are affected by the dominance of certain retailers. Antitrust implications are also assessed.
Charles Murry and Henry S. Schneider
In this chapter we describe the institutions and economics of new- and used-car retailing. Our aim is to provide a resource for researchers interested in the automobile market. We focus on three categories of economic concepts relevant to car retailing: dealership location choice, including agglomeration, entry, and exit; determinants of car pricing; and information, which is central to the used-car market but also affects the new-car market. We also provide a primer on the institutions of car retailing and a reference on data sources for researchers interested in empirical work involving cars.
This chapter surveys the literature on bilateral retailer-supplier pricing relations, with a focus on how they affect retail prices. The discussion brings together three strands of research that are usually discussed separately: the theory of pricing in vertically related oligopoly markets, the theory of price discrimination and buyer power in intermediate good markets, and the empirical analysis of retailer supplier relations. In the theoretical literature, retail prices are very sensitive to assumptions on the nature of retailer-supplier relations, including (1) whether suppliers can use vertical restraints, (2) market structure upstream and downstream, (3) whether the offers suppliers make to retailers are public or private, and (4) whether, and how, firms use nonlinear tariff structures. Theory has also found a number of factors that generate more bargaining power for retailers of greater size. The empirical literature is, as yet, relatively limited, partly because of the confidential nature of retailer–supplier pricing. It has studied the impacts of downstream market structure on retail prices, and the adverse effect on competition from the introduction of resale price maintenance. There is some evidence showing that large retailers secure lower prices from suppliers, particularly when the retailer has a choice of supplier.
Victor Aguirregabiria and Junichi Suzuki
We survey the recent empirical literature on structural models of market entry and spatial competition in oligopoly retail industries. We start with the description of a framework that encompasses various models that have been estimated in empirical applications. We use this framework to discuss important specification assumptions in this literature: firm heterogeneity; specification of price competition; structure of spatial competition; firms’ information; dynamics; multi-store firms; and structure of unobservables. We next describe different types of datasets that have been used in empirical applications. Finally, we discuss econometric issues that researchers should deal with in the estimation of these models, including multiple equilibria and unobserved market heterogeneity. We comment on the advantages and limitations of alternative estimation methods, and how these methods relate to identification restrictions. We conclude with some issues and topics for future research.
Andrea Pozzi and Fabiano Schivardi
We survey the empirical literature analyzing the consequences of entry regulation in retail industries. We begin by providing some background on the most common forms of entry regulation and their rationales. We use Organisation for Economic Co-operation and Development data to show evidence of a general trend towards less stringent entry regulation in the past 15 years. However, substantial heterogeneity persists across countries. Next, we review a number of empirical contributions that analyze the effects of entry regulation on market outcomes. We compare studies relying on quasi-experimental variation in regulation to those based on structural models and comment on strengths and challenges of each approach. We summarize the results obtained by the literature with respect several important outcomes that entry regulation can be expected to affect, such as market structure, entry, productivity and employment. We conclude presenting a few relevant topics that the literature has yet to address and, therefore, represent promising avenues for future research.
Art Carden and Charles Courtemanche
This chapter documents the development of the general merchandise sector and the rise of discounters such as Walmart and Costco. We explore the development of chain stores, mail-order houses, chain stores, and mass-market merchandisers and explain how they emerged in response to changing technology and transaction costs. We discuss the literature on entry by Walmart and other discounters. We also survey the growing literature on the effects of mass-market merchandisers on prices, market structure, labor markets, sociocultural outcomes, and health. These studies rely on a variety of different data sets, regional contexts, and identification strategies, sometimes with conflicting results. Most of this literature focuses on Walmart as the store appears regularly at the top of the Fortune 500, but some studies also consider the effects of other discount stores, warehouse clubs, and supercenters.
Lucia Foster, John Haltiwanger, Shawn Klimek, C.J. Krizan and Scott Ohlmacher
The growth and dominance of large, national chains is a ubiquitous feature of the US retail sector. The recent literature has documented the rise of these chains and the contribution of this structural change to productivity growth in the retail trade sector. Recent studies have also shown that the establishments of large, national chains are both more productive and more stable than the establishments of single-unit firms they are displacing. We build on this literature by following the paths of retail firms and establishments from 1977 to 2007 using establishment- and firm-level data from the Census of Retail Trade and the Longitudinal Business Database. We dissect the shift towards large, national chains on several margins. We explore the differences in entry and exit as well as job creation and destruction patterns at the establishment and firm level. We find that over this period there are consistently high rates of entry and job creation by the establishments of single-unit firms and large, national firms, but net growth is much higher for the large, national firms. Underlying this difference is far lower exit and job destruction rates of establishments from national chains. Thus, the story of the increased dominance of national chains is not so much due to a declining entry rate of new single-unit firms but rather the much greater stability of the new establishments belonging to national chains relative to their single-unit counterparts. Given the increasing dominant role of these chains, we dissect the paths to success of national chains, including an analysis of four key industries in retail trade. We find dramatically different patterns across industries. In general merchandise, the rise in national chains is dominated by slow but gradual growth of firms into national chain status. In contrast, in apparel, which has become much more dominated by national chains in recent years, firms that quickly became national chains play a much greater role.