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20 2020 12:45 - 14:00
Meeting room E4-SR03, Via Roentgen, 1, 4th floor

Category Expansion through Cross-Channel Demand Spillovers


UMUT GULER, Koç University


ABSTRACT
Does the presence of retail stores associated with a distinct product group help to promote the relevant category in that market as a whole? Based on the entry and exit of the Starbucks stores in US markets, this study documents such a demand spillover across channels and firms: Starbucks stores stimulate the demand of rival brand packaged coffee products in grocery retail channels. To establish causality, we use a rich set of controls that include market and time fixed effects and employ an instrumental variables strategy based on the supply-side advantage to operating chain stores in proximate markets. Our results suggest that the dollar sales of packaged coffee products of competing brands go up by approximately 5% in a representative market. The increase is driven by the rise in the quantity of sales, and is due to lower priced products that are not close substitutes to the Starbucks brand. We consider potential mechanisms of a positive demand spillover (taste refinement, a short term reminder effect, reinforcement of consumption habits, caffeine addiction), and provide evidence consistent with habit reinforcement.