publication . Article . Preprint . 2012

Demand Externalities from Co-Location

Boudhayan Sen; Jiwoong Shin; K. Sudhir;
Open Access
  • Published: 01 Feb 2012 Journal: SSRN Electronic Journal (eissn: 1556-5068, Copyright policy)
  • Publisher: Elsevier BV
We illustrate an approach to measure demand externalities from co-location by estimating household level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of gas station, we find significant demand externalities; on average a household that buys gas has 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cemen...
free text keywords: Revenue economies of scope, Demand externalities, One stop shopping, Co-location, Selection, Retail industry

Figure 2: Moderating Effect of Household Loyalty on Grocery Spending (a) Predicted Change in Grocery Spend for Gas Users, by Share of Wallet: Predicted results plotted based on estimates in Column 2 of Table 6.

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