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The Agglomeration of Urban Amenities: Evidence from Milan Restaurants

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  • Leonardi, Marco
  • Moretti, Enrico

Abstract

In many cities, restaurants and retail establishments are spatially concentrated. Economists have long recognized the presence of demand externalities that arise from spatial agglomeration as a possible explanation, but empirically identifying this type of spillovers has proven difficult. We test for the presence of agglomeration spillovers in Milan's restaurant sector using the abolition of a unique regulation that until recently restricted where new restaurants could locate. Before 2005, Milan mandated a minimum distance between restaurants that kept the spatial distribution of restaurants artificially uniform. As a consequence, restaurants were evenly distributed across neighborhoods. The regulation was abolished in 2005 by a nationwide reform that allowed new restaurants to locate anywhere in the city. Using administrative data on the universe of restaurants and retail establishments in Milan between 2000 and 2012, we study how the spatial distribution of restaurants changed after the reform. Consistent with the existence of significant agglomeration externalities, we find that after 2005, the geographical concentration of restaurants increased sharply. By 2012, 7 years after the liberalization of restaurant entry, the city's restaurants had agglomerated in some neighborhoods and deserted others. By contrast, not much happened to the spatial concentration of retail establishments or even retail establishments that sell food, which were never covered by the minimum distance regulations and therefore were not directly affected by its reform. We also find that in neighborhoods where the number of restaurants grew the most after the reform, restaurants reacted to the increased competition by becoming more differentiated based on price, quality and type of cuisine.

Suggested Citation

  • Leonardi, Marco & Moretti, Enrico, 2022. "The Agglomeration of Urban Amenities: Evidence from Milan Restaurants," CEPR Discussion Papers 16937, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:16937
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    Cited by:

    1. Paul C. Cheshire & Christian A. L. Hilber & Piero Montebruno & Rosa Sanchis-Guarner, 2022. "(IN)convenient stores? What do policies pushing stores to town centres actually do?," Working Papers 2022/09, Institut d'Economia de Barcelona (IEB).
    2. Kawaguchi, Daiji & Kawata, Keisuke & Okamoto, Chigusa, 2024. "Urban Redevelopment Program and Demand Externality," IZA Discussion Papers 16925, Institute of Labor Economics (IZA).
    3. Frederic Kluser, Tobias Seidel, Maximilian v. Ehrlich, 2022. "Spatial frictions in consumption and retail competition," Diskussionsschriften credresearchpaper40, Universitaet Bern, Departement Volkswirtschaft - CRED.
    4. Kim, Yanghee & Lee, Minwoo & Kim, Byung-Do & Roh, Taewoo, 2024. "Power of agglomeration on electronic word–of–mouth in the restaurant industry: Exploring the moderation role of review quality difference," Journal of Retailing and Consumer Services, Elsevier, vol. 78(C).
    5. Daiji Kawaguchi & Keisuke Kawata & Chigusa Okamoto, 2024. "Urban Redevelopment Program and Demand Externality," CIRJE F-Series CIRJE-F-1227, CIRJE, Faculty of Economics, University of Tokyo.

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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