Demand agglomeration economies, neighbor heterogeneity, and firm survival: The effect of HHGregg's bankruptcy

Siddharth Sharma and Wilbur Chung

Strategic Management Journal, 2022, vol. 43, issue 2, 370-401

Abstract: While agglomeration economies can enhance collocated firms' performance, firms' gains will be heterogeneous. Gains will be driven not only by firms' own traits, but also by their neighboring firms' traits. We expect a focal firm gains more from neighbors that are larger, more proximate geographically, and more related in economic activity. We leverage a quasi‐experiment that features micro‐geographic, establishment‐level data: the exit of the HHGregg electronics retailer in outdoor shopping malls, to estimate the intensity of demand agglomeration benefits from two sources: (a) a focal‐pair—how HHGregg's exit harms a focal store's survival, and (b) the other neighbors—how the attributes of the remaining neighbors attenuate this reduced survival effect. We find results consistent with the focal store's, HHGregg's, and neighbors' heterogeneity in size and distance affecting the focal store's survival. Managerial Summary While firms can benefit from being located near one another, the benefits vary with both a focal firm's characteristics but also neighboring firms' characteristics. A firm should benefit more from neighbors that are larger, physically closer, and engaged in more similar activity. We examine how the bankruptcy of the HHGregg electronics retailer negatively affected other stores in outdoor shopping malls, and how that loss in benefit was attenuated by the remaining neighbors. We find that a focal store's survival is affected by the focal store's, HHGregg's, and neighbors' heterogeneity in size and physical distance.

Date: 2022
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