THE OPTIMAL MARKET AREA FOR A SINGLE STORE REGION: NEW WINE IN AN OLD BOTTLE

ABSTRACT In this paper we present a new solution to the old problem of determining the optimal market size for a single store selling a single good, We maximize average welfare by minimizing the costs of retailing a good to the average customer who pays both to transport and to store the good at hom...

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Bibliographic Details
Published in:Papers in regional science 1988-01, Vol.65 (1), p.167-180
Main Authors: Lentnek, Barry, Harwitz, Mitchell, Narula, Subhash C.
Format: Article
Language:English
Online Access:Get full text
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Summary:ABSTRACT In this paper we present a new solution to the old problem of determining the optimal market size for a single store selling a single good, We maximize average welfare by minimizing the costs of retailing a good to the average customer who pays both to transport and to store the good at home. We show that average welfare is maximized by a two‐part tariff in which the good is priced at marginal cost and there is a lee that covers fized costs. We demonstrate that regional distribution cost per family is a well‐behaved, u‐shaped cost function of the size of the region in every case where a store is feasible The radius at which this quantity is a minimum defines the optimal range of the good if it is less than or equal to the outer range.
ISSN:1056-8190
0486-2902
1435-5957
DOI:10.1111/j.1435-5597.1988.tb01164.x