Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 1: Entry into Local Retail Food Markets in Sweden: A Real-Options Approach

Sven-Olov Daunfeldt (), Matilda Orth () and Niklas Rudholm ()
Additional contact information
Sven-Olov Daunfeldt: The Swedish Retail Institute (HUI), Postal: Regeringsgatan 60, SE-103 29 Stockholm, Sweden
Matilda Orth: School of Economics and Commercial law, Gothenburg University, Postal: SE-405 30 Göteborg, Sweden
Niklas Rudholm: The Swedish Retail Institute (HUI), Postal: Regeringsgatan 60, SE-103 29 Stockholm, Sweden

Abstract: A real-options approach was used, incorporating uncertainty and irreversibility of investments, to study the number of stores entering the Swedish retail food market during the period 1994-2002. It was found that uncertainty affected the entry-decision. Entry was less frequent in highly concentrated local retail food-markets characterized by a high degree of uncertainty, whereas higher profit opportunities seem to have increased the probability of entry.

Keywords: Real options; uncertainty; retail food; entry; negative binomial regression

JEL-codes: L13; L81

27 pages, February 22, 2007

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