Winning Big: Scale and Success in Retail Entrepreneurship

Brett Hollenbeck and Renato Giroldo

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we study a novel setting where firms were randomly allocated differently sized retail chains in a new and rapidly growing industry. Beginning in 2014, Washington State used a lottery to allocate licenses to firms in the newly legalized retail cannabis industry. This lottery generates random variation in firm size and in the level of market concentration. We also observe detailed data on all subsequent industry transactions, including prices, wholesale costs, markups, and product assortments. We find that firms that are randomly allocated more retail store licenses in the lottery ultimately earn much higher per store profits than single-store firms. Retailers in multi-store chains charge lower margins, offer larger product assortments, and pay lower wholesale prices. They also face higher but more elastic consumer demand. Similarly at the market level, more concentrated markets have lower average prices and markups. We conclude that higher retail scale and a more concentrated retail sector can benefit consumers and firms alike.

Keywords: Economies of scale; retail pricing; markups; entrepreneurship (search for similar items in EconPapers)
JEL-codes: L11 L22 L81 (search for similar items in EconPapers)
Date: 2020-05-20
New Economics Papers: this item is included in nep-com, nep-ent and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://mpra.ub.uni-muenchen.de/100766/1/MPRA_paper_100766.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/101281/1/MPRA_paper_100766.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/106237/1/MPRA_paper_106237.pdf revised version (application/pdf)

Related works:
Journal Article: Winning Big: Scale and Success in Retail Entrepreneurship (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:100766

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