Choosing between Order‐Of‐Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and Mcdonald's Restaurant Outlets

23 Pages Posted: 31 Mar 2015

See all articles by Philip Garland Gayle

Philip Garland Gayle

Kansas State University - Department of Economics

Zijun Luo

Sam Houston State University - College of Business Administration - Department of Economics and International Business

Date Written: March 2015

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.

Suggested Citation

Gayle, Philip Garland and Luo, Zijun, Choosing between Order‐Of‐Entry Assumptions in Empirical Entry Models: Evidence from Competition between Burger King and Mcdonald's Restaurant Outlets (March 2015). The Journal of Industrial Economics, Vol. 63, Issue 1, pp. 129-151, 2015, Available at SSRN: https://ssrn.com/abstract=2587469 or http://dx.doi.org/10.1111/joie.12066

Philip Garland Gayle (Contact Author)

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States

Zijun Luo

Sam Houston State University - College of Business Administration - Department of Economics and International Business ( email )

SHSU Box 2118
Huntsville, TX 77341-2118
United States

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