In: Economics
Why do we find more product variety in larger cities? Explain
with examples.
city structure directly increases product variety by spatially
aggregating demand. I discuss a model of entry thresholds in which
market size is a function of both population and geographic space
and evaluate implications of this model with a new data set of
127,000 restaurants across 726 cities. I find that geographic
concentration of a population leads to a greater number of cuisines
and the likelihood of having a specific cuisine is increasing in
population and population density, with the rarest cuisines found
only in the biggest, densest cities. Further, there is a strong
hierarchical pattern to the distribution of variety across cities
in which the specific cuisines available can be predicted by the
total count. These findings parallel empirical work on Central
Place Theory and provide evidence that demand aggregation has a
significant impact on consumer product variety.
: Restaurants are uniquely suited to studying questions like these.
They are local goods, they are easily categorized into different
varieties by cuisine, and they are an important component of a
city’s attractiveness.
population is clearly a good indicator of cuisine count but there
are a fair number of cities with quite a bit more cuisines (San
Francisco, Seattle, Boston) or quite a bit fewer cuisines
(Indianapolis, Jacksonville, Detroit) than is predicted by city
population.
Bigger cities have greater demand both because they have larger
populations and because they concentrate their population into a
smaller space, meaning restaurants in denser cities have more
potential consumers nearby. This effect of population density can
vary with the geographic size of the city so that the impact of
both population and population density must be separately
estimated.