DP9604 Do we go shopping downtown or in the `burbs? Why not both?

Author(s): Igor Sloev, Jacques-Fran├žois Thisse, Philip Ushchev
Publication Date: August 2013
Keyword(s): monopolistic competition, retailers, shopping behavior, shopping mall, spatial comparison
JEL(s): D43, L81, R10
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9604

We combine spatial and monopolistic competition to study market interactions between downtown retailers and an outlying shopping mall. Consumers shop at either marketplace or at both, and buy each variety in volume. The market solution stems from the interplay between the market expansion effect generated by consumers seeking more opportunities, and the ccompetition effect. Firms' profits increase (decrease) with the entry of local competitors when the former (latter) dominates. Downtown retailers swiftly vanish when the mall is large. A predatory but efficient mall need not be regulated, whereas the regulator must restrict the size of a mall accommodating downtown retailers.