The Tragedy of Local Service Shortage in Cities – A Willingness to Pay Study

The Tragedy of Local Service Shortage in Cities – A Willingness to Pay Study

M. Haraldsson T. Svensson 

VTI, Sweden

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The transformation of the grocery retailing business witnessed in many countries during the last decades has resulted in sparser retailing networks, wherein firm efficiency has improved at the expense of store proximity. This process is welfare enhancing in most cases, but one potential source of market failure remains to be explored. There might exist a degenerative process, caused by uncoordinated individual interaction, creating unmatched demand for local service. The purpose of this paper is to test if local grocery retailing service is a utility plagued by a social dilemma. When a social dilemma is at hand, each individual realises that the impact of his/her choices is too small to make a difference, if others cannot be trusted to act in the same manner. Under this hypothesis, more local service would be observed if individual actions could be coordinated. In a stated preference study, more than 2000 respondents have stated how they would distribute their grocery purchases between a local store 300 m from their homes and a larger, but cheaper, store 10 km away. In a first scenario they do this under the condition that their choice does not affect the existence or design of any of the two stores. This mirrors the realistic case with uncoordinated decisions and negligible individual influence. In a second scenario, the respondents make the same choice but are now informed that the share they buy in the small store will affect the price level and ultimately the survival of the small store. In this way we mimic a case where individuals could trust each other and make short-term sacrifices for a long-term benefit. Based on the answers we estimate the willingness to pay (WTP) for local grocery service. It is found that WTP would be higher if the shopping behaviour could be coordinated. With some sort of binding agreement between the customers, the local store would survive and offer better service and more favourable lower prices than if people act independently. A policy recommendation is to support local grocery stores, not by direct regulations, but through a transport system and a land use pattern that makes local service more favourable.


grocery stores, retailing, social dilemma, urban transport, willingness to pay


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