Small business and the self-organization of a marketplace

Ke Ding (), Toshitaka Gokan () and Xiwei Zhu ()
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Ke Ding: Institute of Developing Economies - Japan External Trade Organization (IDE-JETRO)
Toshitaka Gokan: Institute of Developing Economies - Japan External Trade Organization (IDE-JETRO)
Xiwei Zhu: Zhejiang University

The Annals of Regional Science, 2017, vol. 58, issue 1, No 1, 19 pages

Abstract: Abstract In many developing countries such as China, the typical marketplace is a cluster of small shops or booths. We investigate an economic model in which circular causality, including search and matching between buyers and sellers, forms agglomeration forces. We find that an authoritative third party that reduces search costs is important in sustaining a large marketplace. However, it is unnecessary to reduce search costs to zero. Finally, the low capital requirement of setting up a firm helps to sustain a large marketplace owing to its increased product heterogeneity.

JEL-codes: D04 R12 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00168-016-0800-7

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