Capacity use in multi-unit firms: evidence for efficiency gains or strategic competition in the US restaurant industry?

In this article, I examine both the full firm size distribution and establishment-level capacity use to determine if efficiency gains or strategic competition account for the proliferation of multi-unit firms in the US restaurant industry. Using US census microdata, I find that multi-unit firms operate a greater number of restaurants and larger individual restaurants in larger Metropolitan Statistical Areas (MSAs). This evidence of increased profitability goes hand in hand with increases in capacity utilization through longer operating hours and more intensive production of meals and nonmeals output at individual establishments. Greater capacity exploitation is consistent with efficient firms, rather strategic behaviour, such as product proliferation or location preemption to limit rivalry. Furthermore, these results hold true for multi-unit firms but not for large national chain systems, suggesting that efficiency gains accrue from firm-specific capital, not just from marketing or distribution scale economies.