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When do co-located firms selling identical products thrive?

Author

Listed:
  • Bernhardt, Dan

    (University of Illinois & University of Warwick)

  • Constantinou, Evangelos

    (University of Illinois)

  • Shadmehr, Mehdi

    (University of Chicago and University of Calgary)

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

Suggested Citation

  • Bernhardt, Dan & Constantinou, Evangelos & Shadmehr, Mehdi, 2019. "When do co-located firms selling identical products thrive?," The Warwick Economics Research Paper Series (TWERPS) 1202, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1202
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2019/twerp_1202_bernhardt.pdf
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    References listed on IDEAS

    as
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    3. Marc Dudey, 1988. "Competition by choice," International Finance Discussion Papers 327, Board of Governors of the Federal Reserve System (U.S.).
    4. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-1579, September.
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