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When do co-located firms selling identical products thrive?

Author

Listed:
  • Bernhardt, Dan

    (University of Illinois & University of Warwick)

  • Constantinou, Evangelos

    (University of Illinois)

  • Shadmehr, Mehdi

    (University of Chicago and University of Calgary)

Abstract

When consumers only see prices once they visit stores, and some consumers have time to comparison shop, co-location commits stores to compete and lower prices, which draws consumers away from isolated stores. Profits of co-located firms are a single-peaked function of the number of shoppers—co-located firms thrive when there are some shoppers, but not too many. When consumers know in advance whether they have time to shop, effects are enhanced: co-located stores may draw enough shoppers to drive the expected price paid by a non-shopper below that paid when consumers do not know if they will have time to shop

Suggested Citation

  • Bernhardt, Dan & Constantinou, Evangelos & Shadmehr, Mehdi, 2019. "When do co-located firms selling identical products thrive?," The Warwick Economics Research Paper Series (TWERPS) 1202, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1202
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2019/twerp_1202_bernhardt.pdf
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    References listed on IDEAS

    as
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    3. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-1579, September.
    4. Marc Dudey, 1988. "Competition by choice," International Finance Discussion Papers 327, Board of Governors of the Federal Reserve System (U.S.).
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