Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 134: How does big-box retail entry affect incumbents in the hospitality industry: Evidence from a natural experiment

Oana Mihaescu () and Niklas Rudholm
Additional contact information
Oana Mihaescu: HUI Research, Postal: 103 29 Stockholm, Sweden
Niklas Rudholm: HUI Research, Postal: 103 29 Stockholm, Sweden,

Abstract: This paper empirically measures the effects of big-box retail entry on the productivity of incumbent firms within the hospitality sector in the entry regions and investigates whether the effects differ depending on the size of the local market before entry. We use the entry of IKEA in four Swedish municipalities as a natural experiment to study how it affects productivity in incumbent firms within the hospitality sector. Our results show that entry by IKEA has a negative impact on the productivity of incumbents in Haparanda, Kalmar, and Karlstad, but no statistically significant effects in the metropolitan region of Gothenburg. As the majority of firms in the hospitality sector are restaurants, we expect that our results are due to increased competition within this part of the hospitality sector since all new IKEA stores come with a large, popular, and reasonably-priced restaurant.

Keywords: Big-box entry; agglomeration; production function; hospitality sector

JEL-codes: D22; L11; L25; L83; P25

26 pages, May 7, 2018

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