DP8534 Retail Chain Expansion: The Early Years of McDonalds in Great Britain

Author(s): Otto Toivanen, Michael Waterson
Publication Date: August 2011
Keyword(s): Cost of entry, diffusion, economies of density, economies of scale, entry, expansion
JEL(s): L10, L22, L81
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8534

Understanding the development of chainstores is important given the large GDP share of services and the continuing importance of chains in bringing these services to market. Service chains provide a puzzle because they take a long time to develop even when there are obvious expansion opportunities. We study the spread of McDonalds in Britain. We find cannibalization on the demand side and economies of density both within and between markets on the cost side, and evidence of learning by doing at the firm level. Within-period diseconomies of scale at the firm level help explain the lengthy opening pattern.