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Concentration of Competing Retail Stores

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Author Info
Hideo Konishi () (Boston College)

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Abstract

Geographical concentration of stores that sell similar commodities is pervasive. To analyze this phenomenon, this paper provides a simple two dimensional spatial competition model with consumer taste uncertainty. Given taste uncertainty, concentration of stores attracts more consumers since more variety means that a consumer has a higher chance of finding her favorite commodity (a market size effect). On the other hand, concentration of stores leads to fiercer price competition (a price cutting effect). The trade-off between these two effects is the focus of this paper. We provide a few sufficient conditions for the nonemptiness of equilibrium store location choices in pure strategies. We illustrate, by an example, that the market size effect is much stronger for small scale concentrations, but as the number of stores at the same location becomes larger, the price cutting effect eventually dominates. We also discuss consumers' incentives to visit a concentration of stores instead of using mail orders.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 447.

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Length: 30 pages
Date of creation: 01 Dec 1999
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Publication status: published, Journal of Urban Economics 58, 488-512 (2005)
Handle: RePEc:boc:bocoec:447

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Related research
Keywords: consumer search; market size effect; price cutting effect; taste uncertainty;

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Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
R1 - Urban, Rural, and Regional Economics - - General Regional Economics
R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tomoya Mori, 2006. "Monocentric Versus Polycentric Models in Urban Economics," KIER Working Papers 611, Kyoto University, Institute of Economic Research. [Downloadable!]
  2. Michael J. Hicks, 2005. "Does Wal-Mart Cause an Increase in Anti-Poverty Program Expenditures?," Public Economics 0511015, EconWPA. [Downloadable!]
  3. Michael Hicks, 2007. "Wal-Mart’s Impact on Local Revenue and Expenditure Instruments in Ohio, 1988–2003," Atlantic Economic Journal, International Atlantic Economic Society, vol. 35(1), pages 77-95, March. [Downloadable!] (restricted)
  4. Christou, Charalambos & Vettas, Nikolaos, 2003. "Informative Advertising and Product Differentiation," CEPR Discussion Papers 3953, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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