Working Papers, Swedish National Road & Transport Research Institute (VTI)
No 2007:2:
Economic evaluation of grocery store nets in cities - a model approach
Mattias Haraldsson ()
and Tomas Svensson ()
Abstract: The rapid transformation of the grocery business in cities
from small to larger units during the last decades has resulted in grocery
store nets with fewer nodes. Cost reductions as well as cost increases
associated with the structural change are present, with a poorly understood
net effect. Earlier research indicates that retail trade is subject to an
increasing-returns illusion when increasing consumer participation in
performing the service reduces the amount of service actually performed by
the firm. This is still to a large extent an unexplored issue of utmost
policy relevance. In this paper a total cost model will be presented that
focus on this research question. Its components, grocery prices in
retailing and consumers transport cost functions are estimated from
empirical data and derived from a specific spatial structure respectively.
Our conclusion is that the increasing returns are not an illusion but due
to external costs somewhat exaggerated. The costs associated with the
transport and time use by consumers are more than well compensated by the
scale economies related to larger stores. When the transport network is
severely congested, however, we have a situation closer to the scenario
with an increasing returns illusion. But we can clearly state that the
structural change in grocery retailing is welfare enhancing when the
capacity utilisation in the transportation system is balanced. From a
policy perspective the results of this study clearly suggests that issues
regarding local service should be an integral part of strategic urban
transport planning. With infrastructure and transportation systems that
enable easy and affordable access with cars in the city, a significant
number of people will find it optimal to use large stores for grocery
shopping. Restrictive policies at the more detailed level, currently
applied in many countries, will clearly be ineffective since they are
counteracted by forces released by more strategic choices.
Keywords: grocery stores; urban transport; increasing returns illusion; consumer transport costs; (follow links to similar papers)
JEL-Codes: R14; R20; (follow links to similar papers)
10 pages, February 9, 2007
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- This paper is published as:
-
Haraldsson, Mattias and Tomas Svensson, (2007), 'Economic evaluation of grocery store nets in cities - a model approach', International Journal of Sustainable Development and Planning, Vol. 2, No. 3
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