ENTRY AND EXIT IN GROCERY RETAILING: LOCAL PRE-EMPTIONAND SOCIAL EFFICIENCY

This paper develops an asymmetric price setting oligopoly modelof store opening and closure decisions in the UK supermarket industrywhich is estimated using a survey of consumer choices and a datasetof store characteristics. The model is used to examine the strategiclocal entry and exit behaviour of the ¯rms and the social e±ciencyof stores numbers and store characteristics. It is found that ¯rmsuse store openings to pre-empt rival competition and there is a degreeof local clustering. A welfare analysis of store charactersiticsand store numbers shows that most existing stores and some hypotheticalextra stores are welfare enhancing at the margin. Locationis not optimal but location ine±ciencies are small and ¯rms have incentivesto relocate in socially preferred directions. Recent trends instore characteristics|larger stores and more stores openings by large¯rms|are welfare improving....