Indivisibilities in Distribution

May 2017
Thomas J. Holmes, Ethan Singer

This paper develops and estimates a model of indivisibilities in shipping and economies of scale in consolidation.  It uses highly detailed data on imports where it is possible to observe the contents of individual containers.  In the model, firms are able to adapt to indivisibility constraints by using consolidation strategies, and by determining how dense to make its distribution network in both space and time. The estimated model does a good job of predicting Walmart’s behavior. The paper finds that indivisibilities create significant scale economies in distribution.