Maximum or Minimum Differentiation? Location Patterns of Retail Outlets

Abstract

We empirically test implications from location theory using the location of Los Angeles-area gasoline stations in physical space and in the space of product attributes. We consider the effect of demand patterns, entry costs, and several proxies for competition on the tendency for a gasoline station to be physically located more or less closely to its competitors. Using an estimation procedure that controls for spatial autocorrelation and spatial autoregression, and controlling for market characteristics and nonspatial product attributes, we find considerable evidence that firms locate their stations in an attempt to spatially differentiate their product as market competition increases.

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