Clustering and Joint Marketing in Retail Trade

This paper presents the idea that retail trade stories might cluster with their competitors to pool marketing expenses and thereby increase their individual visibility among consumers. In a model which presumes such a marketing technology we derive some new comparative statics results. In a small/mega center we expect more competing stores in retail trade markets where products are heterogenous and consumers like to compare products before they buy, i.e. where people like to shop around. The size of the demand (number of consumers) is expected to have a greater impact on the number of stores in heterogenous markets compared to homogenous. We also show in this model that there will be too little clustering compared to what a social planner would have prefered. The usual result in the literature is that clustering is excessive. Using data on the store composititon of Swedish mall/mega centers we establish evidence in accordance with the model's empirical predictions.