When do co-located firms selling identical products thrive?

Dan Bernhardt, Evangelos Constantinou and Mehdi Shadmehr
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Mehdi Shadmehr: University of Chicago and University of Calgary

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: When consumers only see prices once they visit stores, and some consumers have time to comparison shop, co-location commits stores to compete and lower prices, which draws consumers away from isolated stores. Profits of co-located firms are a single-peaked function of the number of shoppers—co-located firms thrive when there are some shoppers, but not too many. When consumers know in advance whether they have time to shop, effects are enhanced: co-located stores may draw enough shoppers to drive the expected price paid by a non-shopper below that paid when consumers do not know if they will have time to shop

Date: 2019
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1202

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