Better Together? Retail Chain Performance Dynamics in Store Expansion Before and After Mergers

We study firm performance dynamics in retail growth using a dynamic model of expansion that allow these dynamics to operate through an unobserved serially correlated process. The model is estimated with data on convenience-store chain diffusion across Japanese prefectures from 1982 to 2012, whereby an actual merger between two chains takes place in 2001. Given the presence of serial correlation and selection biases in observed revenue, we combine particle filtering methods for dynamic games with control functions in revenue regressions. The estimated structural model provides us insights about how performance dynamics evolve before and after the merger. In particular, we demonstrate that the performance dynamics for the merged entity do not improve following the merger.