McGill Institute of Marketing presents: Cannibalization and Preemptive Entry in Heterogeneous Markets

Cannibalization and Preemptive Entry in Heterogeneous Markets presented by Nathan Yang (Yale University, Yale School of Business)

Abstract

We study cannibalization and preemption in the evolution of market structure. Because a market can accommodate only a finite number of outlets, forward-looking firms face the tradeoff between cannibalization and preemption. We develop a dynamic entry model of multi-store oligopoly with heterogeneous markets, and estimate it using data on hamburger chains in Canada (1970-2005). Unobserved heterogeneity across geographical markets creates an endogeneity problem that could lead to biased estimates of competition, which we address by combining the procedures proposed by Kasahara and Shimotsu (2009), Arcidiacono and Miller (2011), and Bajari, Benkard, and Levin (2007), respectively. The results suggest (1) cannibalization is the main determinant of profit and entry, (2) preemptive motives could make the timing of McDonald’s entry earlier by seven years, and (3) the omission of unobserved market heterogeneity attenuates the estimates of competition.

All are cordially invited to attend.