Implications of big box retail location on regional profits, consumer utility, and land rents

Abstract

This paper uses a monocentric city model to examine the effects of big box retailing on local retail prices, land values and utility. Relative to small local retailers, the big box offers a price discount that increases in its marginal cost advantage. Big box entry reduces local retail prices and profits, but provides an increase in household utility that depends positively on the distance between the big box location and the CBD. However, big box locations are unstable with imperfectly competitive land markets, as developers and local governments have incentives to entice big boxes to switch locations. © Southern Regional Science Association 2008.