Concentration of Competing Retail Stores

Hideo Konishi

No 447, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Geographical concentration of stores that sell similar commodities is pervasive. To analyze this phenomenon, this paper provides a simple two dimensional spatial competition model with consumer taste uncertainty. Given taste uncertainty, concentration of stores attracts more consumers since more variety means that a consumer has a higher chance of finding her favorite commodity (a market size effect). On the other hand, concentration of stores leads to fiercer price competition (a price cutting effect). The trade-off between these two effects is the focus of this paper. We provide a few sufficient conditions for the nonemptiness of equilibrium store location choices in pure strategies. We illustrate, by an example, that the market size effect is much stronger for small scale concentrations, but as the number of stores at the same location becomes larger, the price cutting effect eventually dominates. We also discuss consumers' incentives to visit a concentration of stores instead of using mail orders.

Keywords: consumer search; market size effect; price cutting effect; taste uncertainty (search for similar items in EconPapers)
JEL-codes: D4 L1 R1 R3 (search for similar items in EconPapers)
Pages: 30 pages
Date: 1999-12-01
New Economics Papers: this item is included in nep-ind
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Citations: View citations in EconPapers (5)

Published, Journal of Urban Economics 58, 488-512 (2005)

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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:447

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