The Production Decisions of Large Competitors: Detecting Cost Advantages and Strategic Behavior in Restaurants
July 2006
Working Paper Number:
CES-06-19
Abstract
This paper evaluates firm profitability in the highly competitive restaurant industry by comparing variation in firm size and production decisions with variation in market size. In the Census microdata, I find that multi-unit firms operate a greater number of restaurants and larger individual restaurants in larger MSAs. They also increase production intensity by increasing production during operating hours, extending operating hours, increasing the volume of meals and non-meals output. These results are generally consistent with full capacity exploitation in efficient firms, rather than underutilization by firms seeking to limit rivalry through excess capacity or product proliferation.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
profitability,
market,
production,
sale,
produce,
establishment,
strategic,
profit,
revenue,
consumer,
profitable,
restaurant
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Metropolitan Statistical Area,
National Science Foundation,
Ordinary Least Squares,
University of Chicago,
Longitudinal Business Database,
Chicago Census Research Data Center,
Census of Retail Trade,
Chicago RDC
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'The Production Decisions of Large Competitors: Detecting Cost Advantages and Strategic Behavior in Restaurants' are listed below in order of similarity.
-
Working PaperResidual Claims and Incentives in Restaurant Chains
July 2006
Working Paper Number:
CES-06-18
I examine the relationship between ownership and production activities using a new dataset of restaurant chains. Production in restaurant chains provides an opportunity to examine the effects of residual claims on incentives because production is decentralized and fairly uniform across restaurants in the same chain. Yet the allocation of residual claims varies between company-owned and franchised units, affecting the strength of incentives for restaurantlevel activities. The decision to own or franchise each restaurant reflects the value of either withholding or allocating residual claims for performing these activities. I find that more complex production activities are systematically correlated with company ownership. Onsite food production raises the likelihood of company ownership by 28% relative to offsite food production. Table service raises the likelihood of company ownership by 26% relative to counter service. The results are not consistent with straightforward effort-promoting effects of residual claims in simple principal agent models. They are consistent with the view that residual claims can generate unbalanced incentives across diverse tasks.View Full Paper PDF
-
Working PaperThe Role of Retail Chains: National, Regional, and Industry Results
December 2005
Working Paper Number:
CES-05-30
We use the establishment level data in the Longitudinal Business Database to measure changes in market structure in the U.S. Retail Trade sector during the period, 1976 to 2000. We use firm ownership information to construct measures of firm entry and exit and also to categorize four types of retail firms: single location, and local, regional, and national chains. We use detailed location data to examine market structure in both national and county markets. We summarize the county level results into three groups: metropolitan, micropolitan, and rural. We find that retail activity is increasingly occurring at establishments owned by chain firms, especially large national chains. On average, we find that all types of retail firms are increasing in size during the period. We also find that larger markets experience more firm turnover. Finally, we see that entry and exit rates vary across two-digit retail industries.View Full Paper PDF
-
Working PaperThe Effects of Occupational Licensing Evidence from Detailed Business-Level Data
January 2017
Working Paper Number:
CES-17-20
Occupational licensing regulation has increased dramatically in importance over the last several decades, currently affecting more than one thousand occupations in the United States. I use confidential U.S. Census Bureau micro-data to study the relationship between occupational licensing and key business outcomes, such as number of practitioners, prices for consumers, and practitioners' entry and exit rates. The paper sheds light on the effect of occupational licensing on industry dynamics and intensity of competition, and is the first to study the effects on providers of required occupational training. I find that occupational licensing regulation does not affect the equilibrium number of practitioners or prices of services to consumers, but reduces significantly practitioner entry and exit rates. I further find that providers of occupational licensing training, namely, schools, are larger and seem to do better, in terms of revenues and gross margins, in states with more stringent occupational licensing regulation.View Full Paper PDF
-
Working PaperHorizontal Diversification and Vertical Contracting: Firm Scope and Asset Ownership in Taxi Fleets
May 2008
Working Paper Number:
CES-08-10
This paper considers the vertical implications of horizontal diversification. Many studies have documented organizational problems following corporate diversification. We propose that selective vertical dis-integration ' shifting asset ownership to agents ' can mitigate rent-seeking and coordination failures in the diversified firm. We test this proposition in a particularly simple setting that allows us to isolate the effects of interest and control for the likely endogeneity of diversification: taxi fleets that diversify into the limousine, or black car, segment following a wave of entry deregulation in the early 1990s. The results show that taxi fleets are substantially more likely to use owner-operator drivers following diversification. Moreover, diversified fleets that use a greater share of owner operators are more productive than diversified fleets that own most of their vehicles. We interpret these findings as evidence that firms re-organize in response to the challenges of diversification, and that there are causal links between the horizontal and vertical boundaries of the fleet.View Full Paper PDF
-
Working PaperEntry, Exit, and the Determinants of Market Structure
September 2009
Working Paper Number:
CES-09-23
Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. We find that entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all important determinants of long run firm values and market structure. As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines. The magnitude of these effects differ substantially across markets due to differences in exogenous cost and demand factors and across the dentist and chiropractor industries. Simulations using the estimated model for the dentist industry show that pressure from both potential entrants and incumbent firms discipline long-run profits. We calculate that a seven percent reduction in the mean sunk entry cost would reduce a monopolist's long-run profits by the same amount as if the firm operated in a duopoly.View Full Paper PDF
-
Working PaperIntra-Firm Spillovers? The Stock and Flow Effects of Collocation
January 2015
Working Paper Number:
CES-15-01
We examine the impact of collocation on local within-firm performance, or intra-firm spillovers, by decomposing spillovers into one-time stock and recurring flow effects. Stock effects include one-time learning effects. Flow effects include ongoing resource sharing as well as cannibalization. Using data on the population of U.S. hotels and restaurants from 1977-2007, we exploit changes in the number of collocated establishments owned by the same firm to estimate the relative importance of stock and flow benefits. We find that collocation improves the productivity of new and existing establishments by 1-2%, even when correcting for endogenous sorting into collocation. The results, in conjunction with our field work, suggest that collocation generally facilitates the transfer of knowledge within the firm, but that flow effects of collocation are more sensitive to the broader economic environment.View Full Paper PDF
-
Working PaperEconomic Factors Underlying the Unbundling of Advertising Agency Services
August 2009
Working Paper Number:
CES-09-15
This paper addresses a longstanding puzzle involving the unbundling of services that has occurred over more than two decades in the U.S. advertising agency industry: How can the shift from the bundling to the unbundling of services be explained and what accounts for the slow pace of change? Using a cost-based theoretical framework of bundling due to Evans and Salinger (2005, 2008), we develop a simple model of an advertising agency's decision to unbundle its services as a tradeoff between the fixed cost to the advertiser of establishing and maintaining a relationship with an advertising agency and pecuniary economies of scale available in providing media services. The results from an econometric analysis of cross-sectional and pooled data collected by the U.S. Census Bureau for quinquenial censuses conducted between 1982 and 2002 support the key predictions of the model. We find that advertising agency establishments are more likely to unbundle if they are large and diversified in their service offerings and are less likely to do so with increasing age and greater geographical scope. We also find a strong trend toward unbundling over time, a result that is partially explained by increases in media prices over time.View Full Paper PDF
-
Working PaperCosts, Demand, and Imperfect Competition as Determinants of Plant_level Output Prices
June 1992
Working Paper Number:
CES-92-05
The empirical modeling of imperfectly competitive markets has been constrained by the difficulty of obtaining micro data on individual producer prices, outputs, and costs. In this paper we utilize micro data collected from the 1977 Census of Manufactures to study the determinants of plant-level output prices among U.S. bread producers. A theoretical model of short-run price competition among plants producing differentiated products is used to specify reduced-form equations for each plant's price and output. Estimates of the reduced-form equations indicate that the main determinants of both the plant's output level and output price are the plant's own cost variables, particularly its capital stock and the prices of material inputs. The number of rival producers faced by the plant, the production costs of these rivals, and the demand conditions faced by the plant play no role in price or output determination. The results are not consistent with either oligopolistic competition or monopoly behavior, but rather are consistent with price-taking behavior by individual producers combined with output quality differentials across producers.View Full Paper PDF
-
Working PaperThe Dynamics of Market Structure and Market Size in Two Health Services Industries
October 2007
Working Paper Number:
CES-07-26
The relationship between the size of a market and the competitiveness of the market has been of long-standing interest to IO economists. Empirical studies have used the relationship between the size of the geographic market and both the number of firms in the market and the average sales of the firms to draw inferences about the degree of competition in the market. This paper extends this framework to incorporate the analysis of entry and exit flows. A key implication of recent entry and exit models is that current market structure will likely depend upon history of past participation. The paper explores these issues empirically by examining producer dynamics for two health service industries, dentistry and chiropractic services. We find that the number of potential entrants and past number of incumbent firms are correlated with current market structure. The empirical results also show that as market size increases the number of firms rises less than proportionately, firm size increases, and average productivity increases. However, the magnitude of the correlations are sensitive to the inclusion of the market history variables.View Full Paper PDF
-
Working PaperThe Effect of the Minimum Wage on Childcare Establishments
August 2025
Working Paper Number:
CES-25-53
Childcare is essential for working families, yet it remains increasingly unaffordable and inaccessible for parents and offers poverty-level wages to many employees. While research suggests minimum wage policies may improve the welfare of low-wage workers, there is also evidence they may increase firm exits, especially among smaller, low-profit firms, which could reduce access and harm consumer well-being. This study is the first to examine these trade-offs in the childcare industry, a labor-intensive, highly regulated sector where capital-labor substitution is limited, and to provide evidence on how minimum wage policies affect a dual-sector labor market in the U.S., where self-employed and waged providers serve overlapping markets. Using variation from state-level minimum wage increases between 1995 and 2019 and unique microdata, I implement a cross-state county border discontinuity design to estimate impacts on the stocks, flows, and composition of childcare establishments. I find that while county-level aggregate establishment stocks and employment remained stable, establishment-level turnover increased, and employment decreased. I reconcile these findings by showing that minimum wage increases prompted reallocation, with larger establishments in the waged-sector more likely to enter and less likely to exit, making this one of the first studies to link null aggregate effects to shifts in establishment composition. Finally, I show that minimum wage increases may negatively affect the self-employed sector, resulting in fewer owners with advanced degrees and more with only high school education. These findings suggest that minimum wage policies reshape who provides care in ways that could affect both quality and access.View Full Paper PDF
