Shopper City

joint with Arnott R. , Auguest 2008.

Abstract: The bulk of the literature on retail location looks at the topic from theperspective of either the retail firm or the individual shopper. Another branch of theliterature examines the spatial distribution of retail activities within a city or region,drawing on either central place theory or the Lowry model, neither of which incorporateseither markets or agglomeration economies. This paper looks at retail location from theperspective of a general equilibrium model of location and land use, with agglomerationeconomies in retailing. In particular, drawing on the Fujita-Ogawa (1982) model of nonmonocentriccities, it develops a model of retail location, assuming that retail firmsbehave competitively, subject to spatial agglomeration economies. Locations aredistinguished according to the effective variety of retail goods they offer. Shoppers arewilling to pay more for goods at locations with greater effective variety, and in theirchoice of where to shop trade off retail price, product variety, and accessibility to home.Retail prices and land rents at different locations adjust to achieve spatial equilibrium.

This is my second paper, but it comes out first and it is forthcoming in a book in honor of Curtis Eaton for his many contribution in economic theory, especially for his work in spatial competition theory. I feel grateful for Professor Arnott, without whose help I could not make it.
See the paper at: Arnott and Tu (2008)
http://www.economics.ucr.edu/papers/papers08/index.html