Agglomeration economies in urban retailing: are there productivity spillovers when big-box retailers enter urban markets?

Abstract

Previous studies have found that big-box retail entry does not affect the productivity of incumbent retailers when entry occurs in urban areas. In this paper, we show that there are positive spillover effects of big-box retail entry for incumbent retailers in urban areas, but these effects are limited to relatively small retailers; thus, it is difficult to detect these effects in a full sample of firms by using traditional econometric methods, such as difference-in-difference estimation. In a two-step procedure, we first use panel smooth transition regression to determine size thresholds that delimit incumbent retail firms by their possible reactions to the new big-box entry. We then use difference-in-difference estimations to determine the direction and magnitude of the effects of big-box entry on the productivity of firms in each subgroup. For the group of small incumbent retailers, we find positive spillover effects on productivity of approximately 9%.