Book Description

"This thesis consists of three essays on topics related to demand, vertical relationships, and competition in the retail industry. Chapters one and two study the same product category, the single-serve coffee category in the U.S.. The first essay studies the impact of tied K-Cup coffee brands on the adoption of the proprietary platform Keurig. We develop and estimate a structural model that jointly considers demand for brewers and coffee, and quantifies and decomposes brands' impact on platform adoption through counterfactual exercises. We aim to identify the most influential brand attributes that drive platform adoption and shed light on the benefits to the platform provider of partnering with big brands. The novelty in the modeling approach and estimation is in allowing for both multi-homing and competing tied goods and exploiting the existence of established brands in an adjacent category as a source of exogenous variation to construct an instrument for endogenous tied good value. We find that K-Cup brands are highly heterogeneous in their impacts, and retail distribution and brand equity are the most influential brand attributes that drive platform adoption. This indicates that Keurig benefits from partnering with big coffee brands by leveraging their established distribution in the retail channel and well-perceived brand equity. The second essay examines the role of store branded "private label" products in determining the bargaining leverage between retailers and manufacturers in the single-serve coffee category. Exploiting a novel setting in which the dominant, single-serve technology was protected by a patent preventing private label entry, we develop a structural model of demand and supply-side bargaining and seeks to quantify the impact of private labels on bargaining outcomes. We find that, while bargaining parameters are relatively symmetric across retailers and manufacturers, the addition of private labels alters bargaining leverage by improving the disagreement payoffs of the retailers (relative to the manufacturers), thereby shifting bargaining outcomes in the retailer's favor. The last essay explores the interesting phenomenon that a Sam's Club store is often established very close to a Walmart store. Studies have shown that retailers clustering close together attract more demand. Yet little is known how co-located differentiated retail outlets impact competitors. In this essay, I aim to understand the strategic incentive of this co-location strategy. To do this, I specify and estimate a static discrete game to examine retailers' entry and location decisions, as well as the choice to co-locate, accounting for retailer heterogeneity and locationcommon information. I find that compared to the stand-alone Sam's Club option, the Walmart-Sam's co-location option exerts a bigger negative impact on, and is also less sensitive to competition from, the other two club store competitors, suggesting that Wal-Mart, the parent company, receives strategic benefit by co-locating these two divisions."--Pages ix-x.