Demand Agglomeration Economies and Firm Heterogeneity:Bankruptcy of HHGregg retailer

Agglomeration economies can provide strategic benefits for collocated firms. Modeling these benefits using a simple two firm framework, Shaver and Flyer (2000) develop a key insight: some firms contribute more than they benefit. We extend the inquiry by considering multiple firms. We build a simulation model composed of multiple, collocated, heterogeneous firms and calculate firm-specific agglomeration benefits using Shaver and Flyer’s two-firm relationship as a building block. We then simulate the exit of one firm, to assess the loss others experience, which generates simulation based predictions. We test our predictions using the bankruptcy of the HHGregg electronics retail chain and the closing of all their stores in May 2017 as a natural experiment. We examine survival of neighboring stores in HHGregg occupied and control malls, and find that other stores’ survival decreases significantly in HHGregg malls.