Spatial Retail Markets with Commuting Consumers

Michael Raith, University of Rochester

Abstract

In this paper we analyse a model of spatial competition with commuting consumers due to Claycombe (1991, International Journal of Industrial Organization 9, 303-313). We show that results different from Claycombe's are obtained if a rigorous game-theoretic analysis is applied to the model. Our results provide a theoretical basis for a later study carried out by Claycombe and Mahan (1993, International Journal of Industrial Organization 11,283-291) and lead to predictions which are in line with the empirical results of that later study. For small commuting distances (relative to the distance between firms), there exists a symmetric equilibrium in which the price is continuous and decreasing in both the commuting distance and the proportion of commuting consumers. For intermediate distances, however, a symmetric price equilibrium in pure strategies in general does not exist. Only if all consumers commute and the commuting distance is large, perfect competition prevails.