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The Optimal Market Area For A Single Store Region: New Wine In An Old Bottle

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  • Barry Lentnek
  • Mitchell Harwitz
  • Subhash C. Narula

Abstract

ABSTRACT In this paper we present a new solution to the old problem of determining the optimal market size for a single store selling a single good, We maximize average welfare by minimizing the costs of retailing a good to the average customer who pays both to transport and to store the good at home. We show that average welfare is maximized by a two‐part tariff in which the good is priced at marginal cost and there is a lee that covers fized costs. We demonstrate that regional distribution cost per family is a well‐behaved, u‐shaped cost function of the size of the region in every case where a store is feasible The radius at which this quantity is a minimum defines the optimal range of the good if it is less than or equal to the outer range.

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  • Barry Lentnek & Mitchell Harwitz & Subhash C. Narula, 1988. "The Optimal Market Area For A Single Store Region: New Wine In An Old Bottle," Papers in Regional Science, Wiley Blackwell, vol. 65(1), pages 167-180, January.
    • Handle: RePEc:bla:presci:v:65:y:1988:i:1:p:167-180
    DOI: 10.1111/j.1435-5597.1988.tb01164.x
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