Monopolistic Competition in the Restaurant Industry
Speaker: Nathan Schiff (Shanghai University of Finance and Economics)
Date: Nov 28, Wednesday, 2018
Time: 12 pm - 1 pm
Venue: Room 1300 at Pudong Campus
Abstract:
This study examines the response to new competition in a large market with differentiated products. We use a novel longitudinal dataset of restaurant menus in New York City to precisely measure price and product changes in the menu of incumbent restaurants responding to entry. We employ a technique from computer science to obtain a scalar measure of the pairwise distance between restaurants in product characteristic space based on differences in menu text. We then address the endogeneity of location choice by matching “treated” incumbent restaurants facing competition from a new entrant with a “control” group of incumbent restaurants that have similar menus and location characteristics but no new competition. While we observe significant menu changes over our sample period, we do not find any evidence that restaurants facing competition respond by changing prices or product characteristics. However, entry competition does increase the probability of market exit: restaurants locating in areas in the top entry decile are 7% more likely to exit after a year than restaurants in the lowest entry decile.
Speaker’s website:
https://nathanschiff.com/
Speaker: Nathan Schiff (Shanghai University of Finance and Economics)
Date: Nov 28, Wednesday, 2018
Time: 12 pm - 1 pm
Venue: Room 1300 at Pudong Campus
Abstract:
This study examines the response to new competition in a large market with differentiated products. We use a novel longitudinal dataset of restaurant menus in New York City to precisely measure price and product changes in the menu of incumbent restaurants responding to entry. We employ a technique from computer science to obtain a scalar measure of the pairwise distance between restaurants in product characteristic space based on differences in menu text. We then address the endogeneity of location choice by matching “treated” incumbent restaurants facing competition from a new entrant with a “control” group of incumbent restaurants that have similar menus and location characteristics but no new competition. While we observe significant menu changes over our sample period, we do not find any evidence that restaurants facing competition respond by changing prices or product characteristics. However, entry competition does increase the probability of market exit: restaurants locating in areas in the top entry decile are 7% more likely to exit after a year than restaurants in the lowest entry decile.
Speaker’s website:
https://nathanschiff.com/