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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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    3. Barbara A. Good, 1998. "Private money: everything old is new again," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
    4. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: Special Results," Economic Journal, Royal Economic Society, vol. 95(380), pages 889-908, December.
    5. Wolitzky, Alexander, 2015. "Communication with tokens in repeated games on networks," Theoretical Economics, Econometric Society, vol. 10(1), January.
    6. Oliver D. Hart, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 529-546.
    7. Ellingsen, Tore, 1998. "Payments in Kind," SSE/EFI Working Paper Series in Economics and Finance 244, Stockholm School of Economics, revised 10 Feb 2000.
    8. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    9. Christine Hauser & Hugo Hopenhayn, 2008. "Trading Favors: Optimal Exchange and Forgiveness," Carlo Alberto Notebooks 88, Collegio Carlo Alberto.
    10. Constantinos Syropoulos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(3), pages 707-727.
    11. Ralph Ossa, 2012. "Profits in the "New Trade" Approach to Trade Negotiations," American Economic Review, American Economic Association, vol. 102(3), pages 466-469, May.
    12. 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.
    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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    More about this item

    Keywords

    Buy local; local currency; trading favors; reciprocity; monopolistic competition;
    All these keywords.

    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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