Distance decreases with differentiation: Strategic agglomeration by retailers

Journal Article (Journal Article)

Theory predicts intense price competition results when firms cluster with rivals. Yet, strong evidence of clustering is found in previous empirical research. Researchers typically measure clustering by comparing observed location patterns to random assignment. The random assignment benchmark does not, however, account for zoning and geography and therefore might overstate the extent of strategic agglomeration. As evidence, we find that public elementary schools cluster more than random, not because of agglomeration economies, but due to demand density and limited location options. We argue that a better measurement of strategic agglomeration is to compare across product markets with similar zoning and other location restrictions but different benefits from agglomeration. We use L-function analysis of five product markets in five cities. We find that retailers with greater ability to differentiate their products are more likely to strategically cluster. © 2008 Elsevier B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Picone, GA; Ridley, DB; Zandbergen, PA

Published Date

  • May 1, 2009

Published In

Volume / Issue

  • 27 / 3

Start / End Page

  • 463 - 473

International Standard Serial Number (ISSN)

  • 0167-7187

Digital Object Identifier (DOI)

  • 10.1016/j.ijindorg.2008.11.007

Citation Source

  • Scopus