Demand Externalities from Co-Location

Boudhayan Sen, Jiwoong Shin and K. Sudhir ()
Additional contact information
Boudhayan Sen: Yale School of Management
Jiwoong Shin: Yale School of Management
K. Sudhir: Cowles Foundation and Yale School of Management

No 1850, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We illustrate an approach to measure demand externalities from co-location by estimating household level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of gas station, we find significant demand externalities; on average a household that buys gas has 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cement the loyalty of store-loyal households. The grocery spillover effects are significant for traditional grocery products, but 23% larger for convenience stores. Thus co-location of a new category impacts both inter-format competition with respect to convenience stores (selling the new category) and intra-format competition with respect to other supermarkets (selling the existing categories).

Keywords: Revenue economies of scope; Demand externalities; One stop shopping; Co-location; Selection; Retail industry (search for similar items in EconPapers)
Pages: 35 pages
Date: 2012-02
New Economics Papers: this item is included in nep-geo, nep-mkt and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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