Tim Harford on chain proliferation:

But an alternative explanation is that large companies [like Starbucks] deliberately open too many stores, or launch too many products, because they wish to pre-empt competitors. Firms could always slash prices instead to keep the competition away but that may not be quite as effective — a competitor might reasonably expect any price war to be temporary. It is less easy to un-launch a new product or shut down a brand-new outlet. A saturated market is likely to stay saturated for a while, then, and that should make proliferation a more credible and effective deterrent than low prices.

A recent paper by two economists from Yale, Mitsuru Igami and Nathan Yang, studies this question in the market for fast-food burgers. Igami and Yang used old telephone directories to track the expansion of the big burger chains into local markets across Canada from 1970 to 2005. After performing some fancy analysis, they concluded that big burger chains did seem to be trying to pre-empt competition. If Igami and Yang’s model is to be believed, McDonald’s was opening more outlets, more quickly than would otherwise have been profitable.

And here I thought Starbucks was trying to bring about the end of the universe.

I can’t say that I dispute the findings of the paper, but I will say that there is a difference between having a Starbucks across the street from somewhere, and down the street. especially in populous areas, crossing the street is a pain in the arse! And it actually can be the difference between my choosing to stop off for coffee, or my choosing not to. It was better for me if the Starbucks was across the street, and therefore required a much-dreaded lefthand turn, but that would have been bad for Starbucks.

I miss the west. So few coffee places out here. But enough about coffee.

I still can’t believe that there are only two McDonald’s in Stone County (pop 30k). Especially given how ridiculously busy one of them is. If nothing else, having another McDonald’s – even one across the street or even just down the street – could help handle the overflow.

In other franchise/chain-related observations, an auto shop with a Popeye’s within walking distance is the best kind of auto shop.

Category: Market

About the Author

3 Responses to The End of Lewis Black’s Universe

  1. I love Popeye’s, but the one closest to me is just far enough to make it not worth my while to walk there.

  2. Peter says:

    As the supermarket chain A&P goes out of business it will be leaving behind a number of former Waldbaum’s and Pathmark stores in my area. Stop&Shop, the biggest supermarket chain in the area, is planning to buy some of these soon-to-be vacant stores, but NOT to convert them to Stop&Shops (it already has done so with a few sites). It instead will try to prevent encroachment by competitors by renting the sites only to nonfood retailers.

    • trumwill says:

      That just seems like an odd business model to me. Being a landlord can be difficult and time-intensive thing and outside of their area of expertise. Then again, maybe it makes sense if you just outsource the day-to-day.

Leave a Reply

Your email address will not be published. Required fields are marked *

If you are interested in subscribing to new post notifications,
please enter your email address on this page.