Empirical Analysis of Retail Competition: Spatial Differentiation at Wal-Mart, Amazon.com, and Their Competitors

This paper quantifies the degree of competition and spatial differentiation across different retail channels by exploiting a unique dataset that describes a consumer’s choice of store, product of purchase, item price, and demographics. For each household, I collect information on the location and distance of nearby stores. Then I estimate a consumer’s choice of retailer in the sales market for DVDs among online, mass merchant, electronics, video specialty, and music stores. Using a discrete choice model, I allow for unobserved heterogeneity in preferences for store types and disutility of travel. A consumer’s traveling cost varies by income, and substitution occurs proportionately more among stores of the same type. Conditional on price and distance, the average consumer still prefers Wal-Mart over most other stores. In addition, consumers’ shopping patterns across store types vary significantly by gender, education, and the presence of children.