Essays on neighborhood effects and spatial diffusion: Evidence from online grocery retailing
For a traditional retailer, the size of the customer pool can evolve over time but is largely bounded in space. In contrast, an Internet retailer with the appropriate shipping infrastructure can draw customers from a wide-ranging geographical area (e.g., the entire United States). Insight into the process of customer base evolution is therefore of considerable importance for managers and researchers alike. In this dissertation, we examine the space-time sequencing of customer orders and the individual trial decision for customers shopping at an Internet grocery retailer (Netgrocer.com). Drawing on literature in economics, marketing and sociology, we conjecture that the trial decision may be subject to neighborhood effects. That is, exposure to the actions of proximate others--either through direct social interaction or passive observation--influences the trial decision of individuals who have yet to experience the service. We focus on obtaining answers to the following general research questions: (1) Is there evidence that neighborhood effects are helping to generate the observed pattern of customer evolution in space and time? (2) If so, what is the economic impact of neighborhood effects on space-time diffusion? (3) Are the neighborhood effects absent for repeat purchase decisions? These questions are examined in two separate essays. In the first essay, we develop a discrete-time hazard model in which consumer trial decisions arise from utility-maximizing behavior. In the second essay, a spatial mixture modeling framework is developed. Each essay addresses substantive implications for customer base evolution in an Internet retailing context. All models are calibrated on a unique dataset that combines: (1) a complete transaction history from Netgrocer.com, (2) US Census information, and (3) region-level retail structure data. Geographic Information System (GIS) analysis is employed to create an alternative representation of spatial interactions.