The Agglomeration-Differentiation Tradeoff in Spatial Location Choice

Sumon Datta () and K. Sudhir ()
Additional contact information
Sumon Datta: Purdue University
K. Sudhir: Yale School of Management, Yale University

Customer Needs and Solutions, 2023, vol. 10, issue 1, No 5, 25 pages

Abstract: Abstract Retailers often co-locate spatially to draw consumers, even though it increases price competition. The paper develops a structural model of entry and location choice that isolates the agglomeration benefit of co-location, after controlling for pure differentiation rationales for co-location such as (1) high demand and/or low cost at the location, (2) zoning restrictions, and (3) format differentiation that minimizes the need for spatial differentiation. We augment the entry and location choice data used in the literature with revenue and price data to help identify the agglomeration effect. We introduce a new approach to obtaining zoning data across a large number of markets that should be of general interest for a large stream of spatial location applications. We find that agglomeration benefits explain a significant fraction of observed co-location. While zoning restrictions have a little direct impact on co-location, in combination with the agglomeration benefit, they explain a surprisingly large fraction of observed co-location.

Keywords: Entry; Location choice; Agglomeration; Differentiation; Zoning; Retail competition; Store format; Discrete games; Multiple equilibria; Structural modeling (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40547-023-00135-w Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:custns:v:10:y:2023:i:1:d:10.1007_s40547-023-00135-w

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40547

DOI: 10.1007/s40547-023-00135-w

Access Statistics for this article

Customer Needs and Solutions is currently edited by Min Ding

More articles in Customer Needs and Solutions from Springer, Institute for Sustainable Innovation and Growth (iSIG)
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().