“Responses after Rivals Exit: Product Variety, New Store Opening and Preexisting Market Structure” by Dr. Charlotte R. REN
Dr. Charlotte R. REN
Visiting Assistant Professor of Strategic Management
Penn School of Social Policy & Practice and The Wharton School
University of Pennsylvania
The departure of major players from a concentrated market often causes dramatic changes in the competitive landscape, yet little research has investigated the strategic implications of rival exits for surviving firms. This study examines analytically and empirically how a surviving firm responds to the exit of its direct rival through two levers, namely adjusting its product variety and opening new stores. Using a unique and novel data set that contains all Best Buy stores in the United States in 2006 and 2010, both before and after the full exit of Circuit City, the authors find that the surviving retailer’s use of the two levers is affected by preexisting market structures and one lever interacts with another. Specifically, Best Buy increases its store-level product variety after the full exit of Circuit City; the magnitude of increase is greater when there used to be a co-located rival in the preexisting market, versus the case of a preexisting market that has only distant rivals (labeled as colocated vs. non-colocated markets). Moreover, they find that Best Buy is more likely to open new stores in non-colocated than colocated markets. Further, they find that the magnitude of product variety increase diminishes with the opening of new stores, suggesting a compensatory relationship of the two levers.