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Buying Locally

Author

Listed:
  • George J. Mailath

    (Department of Economics, University of Pennsylvania)

  • Andrew Postlewaite

    (Department of Economics, University of Pennsylvania)

  • Larry Samuelson

    (Department of Economics, Yale University)

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," PIER Working Paper Archive 15-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:15-012
    as

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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/15-012_0.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
    1. 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.
    2. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    3. Ellingsen, Tore, 1998. "Payments in Kind," SSE/EFI Working Paper Series in Economics and Finance 244, Stockholm School of Economics, revised 10 Feb 2000.
    4. 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.
    5. 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.
    6. Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo.
    7. Oliver D. Hart, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 529-546.
    8. Barbara A. Good, 1998. "Private money: everything old is new again," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
    9. Wolitzky, Alexander, 2015. "Communication with tokens in repeated games on networks," Theoretical Economics, Econometric Society, vol. 10(1), January.
    10. Christine Hauser & Hugo Hopenhayn, 2008. "Trading Favors: Optimal Exchange and Forgiveness," Carlo Alberto Notebooks 88, Collegio Carlo Alberto.
    11. 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.
    12. Constantinos Syropoulos, 2002. "Optimum Tariffs and Retaliation Revisited: How Country Size Matters," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 707-727.
    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,” G. J. Mailath, A. Postlewaite & L. Samuelson (2015)
      by afinetheorem in A Fine Theorem on 2015-08-07 00:11:55
    2. 'Buying Locally'
      by Mark Thoma in Economist's View on 2015-08-06 17:29:29

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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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