Retail Agglomeration and Competition Externalities: Evidence from Openings and Closings of Multiline Department Stores in the US

Abstract

From the perspective of an existing retailer, the optimal size of a cluster of retail activity represents a trade-off between the marginal increases in consumer attraction from another store against the depletion of the customer base caused by an additional competitor. We estimate opening and closing probabilities of multi-line department stores (“anchors”) as a function of pre-existing anchors by type of anchor store (low-priced, mid-priced or high-priced) using a bias corrected probit model with county and year fixed effects. We find strong negative competitive effects of an additional same type but no effect on openings of anchors of another type.