Testing Implications of Spatial Economics Models: Some Evidence from Food Retailing

Under certain conditions, spatial economics models predict an increase in product price after entry of new competitors in a market area. However, a review of spatial economics models suggests new competitors should cause lower prices in urbanized markets, although the effect is dependent on distance between the existing and new firms. An empirical analysis of entry in a local retail food market supports this hypothesis for food products but not nonfood products.