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Buying Locally

Author

Listed:
  • George J. Mailath
  • Andrew Postlewaite
  • Larry Samuelson

Abstract

“Buy local” arrangements encourage members of a community or group to patronize one another rather than the external economy. They range from formal mechanisms such as local currencies to informal “I’ll buy from you if you buy from me” arrangements, and are often championed on social or environmental grounds. We show that in a monopolistically competitive economy, buy local arrangements can have salutary effects even for selfish agents immune to social or environmental considerations. Buy local arrangements effectively allow firms to exploit the equilibrium price-cost gap to profitably expand their sales at the going price.

Suggested Citation

  • George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2015. "Buying Locally," ANU Working Papers in Economics and Econometrics 2015-624, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2015-624
    as

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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp624.pdf
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    Other versions of this item:

    • George J. Mailath & Andrew Postlewaite & Larry Samuelson, 2016. "Buying Locally," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1179-1200, November.

    References listed on IDEAS

    as
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    5. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    6. Christine Hauser & Hugo Hopenhayn, 2008. "Trading Favors: Optimal Exchange and Forgiveness," Carlo Alberto Notebooks 88, Collegio Carlo Alberto.
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    8. Atila Abdulkadiroglu & Kyle Bagwell, 2013. "Trust, Reciprocity, and Favors in Cooperative Relationships," American Economic Journal: Microeconomics, American Economic Association, vol. 5(2), pages 213-259, May.
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    10. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
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    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. 'Buying Locally'
      by Mark Thoma in Economist's View on 2015-08-06 17:29:29
    2. “Buying Locally,” G. J. Mailath, A. Postlewaite & L. Samuelson (2015)
      by afinetheorem in A Fine Theorem on 2015-08-07 00:11:55

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    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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