Abstract:Using data from 2000-2011, the effects of a new IKEA store on retail revenues, employment, and inflow of purchasing power in the entry municipalities, as well as in neighboring municipalities were investigated. A propensity score matching method was used to find non IKEA entry municipalities that were as similar as possible to the entry municipalities based on the situation before entry. Our results indicate that IKEA-entry increased entry-municipality durable-goods revenues by about 20% and employment by about 17%. Only small and, in most cases, statistically insignificant effects were found in neighboring municipalities.

We investigate the effects of IKEA entry in three Swedish municipalities, finding that revenues for incumbent retailers located 1 km from the new IKEA store experienced a 7% increase due to positive spillover. The effect was insignificant for retailers located in city centres or more than 1 km from IKEA. Moreover, the positive agglomeration effects only dominate the negative competition effects for stores that sell complementary products, while same-market retailers located between 2 and 5 km from the new IKEA store experienced revenue loss due to IKEA entry. In contrast to retail revenues, the effects on employment were statistically insignificant.

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