Big-box retail entry in urban areas implies positive spillover effects on small retailers

26 mars 2019

Oana Mihaescu and Niklas Rudholm, researchers at the Institute of Retail Economics, have together with Yujiao Li and Johan Håkansson, Dalarna University, published the article “Agglomeration economies in urban retailing: are there productivity spillovers when big-box retailers enter urban markets?” in Applied Economic Letters.

The authors find that there are positive spillover effects of big-box retail entry on incumbent retailers in urban areas, but the effects are limited to relatively small retailers. The authors argue that previous studies could not identify these effects because they are difficult to detect by using traditional econometric methods on a full sample of firms due to the high variation within the sample.

A two-step procedure is therefore used in this study: first, a panel smooth transition regression is employed to determine size thresholds that delimit incumbent retail firms by their possible reactions to the new big-box entry. In a second step, difference-in-difference estimations are employed to determine the direction and measure the magnitude of the effects of big-box entry on the productivity of firms in each subgroup. Positive spillover effects on productivity of approximately 9% are found for the group of small incumbent retail firms with a capital stock of less than 1 500 000 SEK (approximately 140 000 EUR), while larger firms are unaffected by the entry of the big-box retailer.

The paper can be downloaded here.

If you have any questions please do not hesitate to contact Dr. Oana Mihaescu (