COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1851 Does Reducing Spatial Differentiation Increase Product
Differentiation? Sumon Datta and K. Sudhir March 2012 This paper investigates the impact of spatial zoning restrictions on
retail market outcomes. We estimate a structural model of entry, location and format
choice across a large number of markets in the presence of zoning restrictions. The paper
contributes to the literature in three ways: First, the paper demonstrates that the
omission of zoning restrictions in the extant literature on entry and location choice
leads to biased estimates of the factors affecting market potential and competitive
intensity. Second, the cross-market variations in zoning regulations helps us test and
provide evidence for the theory that constraints on spatial differentiation will lead to
greater product differentiation. Finally, we provide qualitative insight on how zoning
impacts retail entry and format variety; in particular we evaluate the impact of
prototypical zoning arrangements such as "centralized,"
"neighborhood," and "outskirt" zoning on entry and format variety. |
