Question

In: Economics

Why do we find more product variety in larger cities? Explain with examples.

Why do we find more product variety in larger cities? Explain with examples.

Solutions

Expert Solution

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.


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