Choosing between Order-of-Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and McDonald’s Restaurant Outlets

Gayle, Philip and Luo, Zijun (2012): Choosing between Order-of-Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and McDonald’s Restaurant Outlets. Forthcoming in: Journal of Industrial Economics

Abstract

We demonstrate how a non-nested statistical test developed by Vuong (1989) can be used to assess the suitability of alternate order-of-entry assumptions used for identification purposes in empirical entry models. As an example, we estimate an entry model of McDonald’s and Burger King restaurant outlets in United States. The data set focuses on relatively small “isolated” markets. For these markets, the non-nested tests suggest that order-of-entry assumptions that give Burger King outlets a first-mover advantage are statistically preferred. Last, a Monte Carlo experiment provides encouraging results suggesting that the Vuong-type test yields reliable results within the entry model framework.

• Item Type: MPRA Paper
• Language: English
• Keywords: Empirical Entry Model; Non-nested Statistical Test; Competition in Fast Food
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L66 - Food ; Beverages ; Cosmetics ; Tobacco ; Wine and Spirits

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