Quantitative Marketing and Economics

, Volume 11, Issue 1, pp 83-116

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Does reducing spatial differentiation increase product differentiation? Effects of zoning on retail entry and format variety

  • Sumon DattaAffiliated withKrannert School of Management, Purdue University Email author 
  • , K. SudhirAffiliated withYale School of Management


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.


Product variety Zoning Entry Location choice Retail competition Discrete games Multiple equilibria Structural modeling

JEL Classification

C5 C70 L13 L81 M31