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Retail sprawl and multi-store firms: An analysis of location choice by retail chains

  • Karamychev, Vladimir
  • van Reeven, Peran

A growing number of cities and towns restrict the number of chain stores within their borders in order to prevent sprawl and increase in traffic problems. This paper verifies these concerns by analyzing endogenous location choices by multi-store firms, which sell heterogeneous products and can charge different prices at every store. It takes a generalized transportation cost approach to Salop [Salop, S.C., 1979. Monopolistic competition with outside goods. Bell Journal of Economics 10, 141-156], in which consumers' utility not only depends on real transportation costs but also on their preferences or tastes. The model confirms that firms' location strategies contribute to retail sprawl. However, the resulting locations actually minimize consumers' generalized transportation costs for given sizes of retail chains. One of the implications is that further concentration in the retail industry is welfare improving.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 3 (May)
Pages: 277-286

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Handle: RePEc:eee:regeco:v:39:y:2009:i:3:p:277-286
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  1. Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
  2. Li, Changying, 2006. "Location choice in a mixed oligopoly," Economic Modelling, Elsevier, vol. 23(1), pages 131-141, January.
  3. Aguirregabiria, Victor & Vicentini, Gustavo, 2014. "Dynamic Spatial Competition Between Multi-Store Firms," CEPR Discussion Papers 10273, C.E.P.R. Discussion Papers.
  4. Pal, Debashis & Sarkar, Jyotirmoy, 2002. "Spatial competition among multi-store firms," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 163-190, February.
  5. Chia-Ming Yu & Fu-Chuan Lai, 2003. "Cournot competition in spatial markets: Some further results," Papers in Regional Science, Springer;Regional Science Association International, vol. 82(4), pages 569-580, November.
  6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  7. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-76, September.
  8. Shin-Kun Peng & Takatoshi Tabuchi, 2007. "Spatial Competition in Variety and Number of Stores," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 227-250, 03.
  9. Barnali Gupta & Debashis Pal & Jyotirmoy Sarkar, 2006. "Product Differentiation and Location Choice in a Circular City," Journal of Regional Science, Wiley Blackwell, vol. 46(2), pages 313-331.
  10. Maarten C.W. Janssen & Vladimir A. Karamychev & Peran van Reeven, 2003. "Multi-Store Competition: Market Segmentation or Interlacing?," Tinbergen Institute Discussion Papers 03-033/1, Tinbergen Institute.
  11. Shin-Kun Peng & Takatoshi Tabuchi, 2007. "Erratum: Spatial Competition in Variety and Number of Stores," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 537-537, 06.
  12. Pal, Debashis, 1998. "Does Cournot competition yield spatial agglomeration?," Economics Letters, Elsevier, vol. 60(1), pages 49-53, July.
  13. Chamorro-Rivas, Jose-Maria, 2000. "Plant proliferation in a spatial model of Cournot competition," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 507-518, September.
  14. Klemperer, Paul, 1992. "Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive," American Economic Review, American Economic Association, vol. 82(4), pages 740-55, September.
  15. Gupta, Barnali & Lai, Fu-Chuan & Pal, Debashis & Sarkar, Jyotirmoy & Yu, Chia-Ming, 2004. "Where to locate in a circular city?," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 759-782, June.
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