Yue Cao Publications

Economists often use variation in consumers’ distance from services as a source of demand variation. This approach typically treats consumer-supplier distance as exogenous, despite suppliers strategically choosing locations. We develop a novel class of instruments to address this endogeneity. These instruments exploit the spatial distribution of consumer demographics and can be constructed from standard cross-sectional data, making them useful in a variety of spatial applications. Our preferred instruments use the income composition of concentric discs centered on the Central Business District. Applying these instruments to smartphone geolocation data for millions of devices across 18 metropolitan areas, we estimate consumer preferences for general merchandise chains across income groups. We show that accounting for distance endogeneity significantly alters willingness-to-travel estimates, distorting welfare conclusions. Contrary to a prevailing “retail apocalypse” narrative, consumer surplus per trip remained stable from 2010 to 2019. Ignoring endogeneity falsely suggests substantial welfare declines for lower-income households.

A common tactic to estimate willingness-to-travel exploits variation in the relative proximity of consumers to supplier locations. The validity of these estimates relies on the exogeneity of that consumer-supplier distance. We argue that distance to suppliers is endogenous because suppliers strategically choose locations to target consumers; we introduce a novel instrument to address this form of endogeneity. Using geolocation data from millions of smartphones, we estimate consumer preferences for specific retail chains across income groups and regions. We show that accounting for distance endogeneity significantly alters willingness-to-travel measures. Contrary to the prevailing “retail apocalypse” narrative, we find that consumer surplus per trip to general merchandise stores did not significantly decline from 2010 to 2019. For the lowest-income consumers, the expansion of national chains, particularly dollar stores, nearly compensates for the closure of traditional department stores and regional chains. Notably, failing to account for distance endogeneity leads to the erroneous conclusion that lower-income households experienced statistically significant consumer surplus declines.