, Volume 11, Issue 1, pp 83-116,
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

Abstract

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.

The paper is based on an essay from the first author’s dissertation at the Yale School of Management. We thank Ahmed Khwaja, Jiwoong Shin and participants at the 2011 SICS conference, 2011 Marketing in Israel Conference, 2011 Marketing Science Conference, seminars in the Marketing departments at University of Connecticut, Fudan, Texas A&M, and Ph.D. student workshops in the Marketing departments at Yale School of Management, Purdue University and University of Michigan for their comments.