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Isolation or joining a mall? On the location choice of competing shops

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  • Non, Marielle

Abstract

I study the location choice of competing shops. A shop can either be isolated or join a mall. A fraction of consumers is uninformed about prices and incurs costs to travel between market places and to enter a shop. The equilibrium mall size is computed for several parameter values, showing that mall and isolated shops can coexist. Several effects play a role. Mall shops attract more consumers, but isolated shops set a higher maximum price. Moreover, numerical evaluations show that an increase in mall size decreases the average price level and increases the participation level of uninformed consumers.

Suggested Citation

  • Non, Marielle, 2010. "Isolation or joining a mall? On the location choice of competing shops," MPRA Paper 20044, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20044
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    File URL: https://mpra.ub.uni-muenchen.de/20044/1/MPRA_paper_20044.pdf
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    References listed on IDEAS

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    1. Jeffrey H. Fischer & Joseph E. Harrington Jr., 1996. "Product Variety and Firm Agglomeration," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 281-309, Summer.
    2. Asher Wolinsky, 1983. "Retail Trade Concentration Due to Consumers' Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 275-282, Spring.
    3. 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.
    4. Gehrig, Thomas, 1998. "Competing markets," European Economic Review, Elsevier, vol. 42(2), pages 277-310, February.
    5. Konishi, Hideo, 2005. "Concentration of competing retail stores," Journal of Urban Economics, Elsevier, vol. 58(3), pages 488-512, November.
    6. Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
    7. Dudey, Marc, 1993. "A Note on Consumer Search, Firm Location Choice, and Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 41(3), pages 323-331, September.
    8. Dudey, Marc, 1990. "Competition by Choice: The Effect of Consumer Search on Firm Location Decisions," American Economic Review, American Economic Association, vol. 80(5), pages 1092-1104, December.
    9. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
    10. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    11. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
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    Cited by:

    1. Armstrong, Mark, 2016. "Ordered Consumer Search," MPRA Paper 72194, University Library of Munich, Germany.
    2. Alexei Parakhonyak & Maria Titova, 2016. "Shopping Malls, Platforms and Consumer Search," Economics Series Working Papers 807, University of Oxford, Department of Economics.
    3. Rhodes, Andrew & Zhou, Jidong, 2016. "Consumer Search and Retail Market Structure," MPRA Paper 69484, University Library of Munich, Germany.

    More about this item

    Keywords

    location choice; travel costs; pricing; consumer search;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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