The intellectual merit of this approach is the examination of the economics of density and of plant size. (1) Economies of Density A retailer can often achieve cost savings by locating its stores close together. A dense network of stores facilities the logistics of deliveries and the sharing of infrastructure such as distribution centers. When stores are close together they are easier to manage and it is easier to reshuffle employees between stores. Such cost savings are economies of density. This project will examine economies of density in the retail industry and determine the role these economies play in the evolution of the industry. The first stage in this project is an analysis that focuses solely on Wal-Mart, the world's largest retailer. The second stage of the project considers Wal-Mart, Target, and K-Mart together. The analysis will highlight the role played by strategic behavior in evolution of store locations in this industry. (2) Plant Size and Plant Function In any industry there is tremendous variation in plant size. Today, the standard approach in economics for accounting for these size differences is through heterogeneity in plant-level productivity. The proposed work expands the notion of within-industry heterogeneity beyond productivity to include variation in function. Small plants tend to do different things than large plants; in particular, they specialize in more custom work or retail-like activity. If all variation in plant size is mistakenly attributed to productivity differences, quantitative work is likely to be erroneous.
Broader impact This project will use Census micro data to quantify the role that variation in plant function plays in accounting for the size distribution of plants within narrowly-defined industries. The results of the research are relevant to timely and important policy questions. For example, the insights from this resarch into the basic forces at work in the evolution of the retail industry will be useful in assessing a variety of government policies that affect the structure of the retail industry and in particular government policies toward Wal-Mart.
