Managing Store Market Share in the Face of Growing Competition

Abstract

This study investigates the impact of new store entry on market share of existing stores using store market share data and a spatial market response model. Retailers can gain insight into the role of store characteristics in retail competition and predict patronage shifting patterns using the aggregate data before the entry of the competitor. The spatial market response model involves heterogeneous response across geographic segments to the new store, and a proposition on the response is that consumers shift their patronage to the new store if their store choice set changes. Store characteristics affecting choice set formation is accessibility to the new store, awareness of the new store, and substitutability among stores. An empirical analysis in the motion picture exhibition industry in Korea shows that both the substitutability and accessibility factors are critical to capture the disproportionate impact of a new entrant on market shares of existing theaters, and store awareness is a key factor in lowering the changing rate in market share of late entrants. The estimated patterns of theater patronage from aggregate market share data are consistent with the survey response from moviegoers.