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Competition between Small Shops and a Large Shopping Center

Author

Listed:
  • Ushchev Ph.

    (National Research University Higher School of Economics, Moscow, Russia)

  • Sloev I.

    (National Research University Higher School of Economics, Moscow, Russia)

  • Thisse J.-F.

    (National Research University Higher School of Economics, Moscow, Russia)

Abstract

We study competition between two shopping places: a shopping street, which accommodates many independent small shops, and a large shopping center. The approach we propose in this paper combines the features of spatial competition models and monopolistic competition models. Consumers can shop at any of the shopping places (or at both), as well as choose how much of each variety to purchase. We find that the equilibrium is shaped by interaction of two opposite effects: the market expansion effect (which arises because a shopping center becomes more appealing for consumers when its size increases) and the standard competition effect. Firms' profits increase (decrease) in response to entry of new competitors to the shopping street if and only if the former (latter) effect is a dominant one. We also show that the shopping street cannot be arbitrarily small under free entry and exit of shops and under a given size of the shopping center. However, the shopping street can abruptly vanish when the shopping center gets sufficiently large.

Suggested Citation

  • Ushchev Ph. & Sloev I. & Thisse J.-F., 2014. "Competition between Small Shops and a Large Shopping Center," Journal of the New Economic Association, New Economic Association, vol. 23(3), pages 12-37.
  • Handle: RePEc:nea:journl:y:2014:i:23:p:12-37
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    References listed on IDEAS

    as
    1. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, July.
    2. Ken-Ichi Shimomura & Jacques-François Thisse, 2012. "Competition among the big and the small," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 329-347, June.
    3. Howard Smith & Donald Hay, 2005. "Streets, Malls, and Supermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 29-59, March.
    4. Konrad Stahl, 1982. "Location and Spatial Pricing Theory with Nonconvex Transportation Cost Schedules," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 575-582, Autumn.
    5. Gehrig, Thomas, 1998. "Competing markets," European Economic Review, Elsevier, vol. 42(2), pages 277-310, February.
    6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    7. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques‐François Thisse, 2012. "Monopolistic Competition: Beyond the Constant Elasticity of Substitution," Econometrica, Econometric Society, vol. 80(6), pages 2765-2784, November.
    8. Norbert Schulz & Konrad Stahl, 1996. "Do Consumers Search for the Highest Price? Oligopoly Equilibrium and Monopoly Optimum in Differentiated Products Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 542-562, Autumn.
    9. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, January.
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    More about this item

    Keywords

    consumers' behavior; spatial competition; monopolistic competition;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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