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Buying Locally


  • George J. Mailath

    () (Department of Economics, University of Pennsylvania)

  • Andrew Postlewaite

    () (Department of Economics, University of Pennsylvania)

  • Larry Samuelson

    () (Department of Economics, Yale University)


“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

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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, pages 1179-1200, November.

    References listed on IDEAS

    1. Postlewaite, Andrew & McLean, Richard, 2015. "Implementation with interdependent valuations," Theoretical Economics, Econometric Society, vol. 10(3), September.
    2. John O. Ledyard & Thomas R. Palfrey, 1994. "Voting and Lottery Drafts as Efficient Public Goods Mechanisms," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 327-355.
    3. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    4. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
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    Blog mentions

    As found by, 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

    More about this item


    Buy local; local currency; trading favors; reciprocity; monopolistic competition;

    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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