Properties of Retail Distribution and the Implications for Antitrust Analysis

Economic models of products sold in the retail channel typically only control for whether a product is available in at least one store in a given market, i.e., variation along the extensive margin. We demonstrate that it is also important to control for intensive margin variation regarding the depth of a product’s availability. Looking at five grocery categories, we show that (a) many products are distributed in only a limited number of stores; (b) distribution undergoes significant variation over time; and (c) distribution’s effect on sales is approximately constant returns to scale. These findings not only demonstrate that retail distribution is an important determinant of sales, but also displays significant variation that is not controlled for using only an extensive margin measure. We consider two applications where the importance of retail distribution has been under-appreciated: antitrust analysis and demand estimation.