An Empirical Investigation of Spatial Externalities in Product Arrangements on Retail Shelves

A product's position on the shop shelf relative to other products in the category is an important yet understated factor affecting product demand. We present a parametric demand model that interprets the location of shelf facings as a set of (potentially irregular) lattice data and thereafter deploy spatial econometric techniques to (a) jointly estimate shelf position dependent demand parameters for all the stock keeping units (SKUs) in the focal category, and (b) develop an understanding of the nature of position-effects on SKU sales. In particular, we empirically investigate the (a) existence, (b) source, (c) range, (d) directionality, and (e) monetary value of spatial externalities in product demand.