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Many-firm dynamic spatial competition in retailing : the emergence of self-organized criticality

Authors Krider, Robert E.
Weinberg, Charles B.
Issue Date 1994-03
Summary Conventional wisdom suggests that rapid change is a dominant characteristic of retailing, and that success in this industry depends on management's ability to respond quickly and effectively to these changes. In spite of this intense dynamism, there is also a tradition that suggests there is an underlying order, such as the "wheel of retailing", in this industry. This paper formalizes the conventional wisdom of rapid change in a spatial interaction model, and, via a stochastic steady state known as self-organized criticality (SOC), connects it to the tradition of underlying order. SOC has a number of interesting and appealing characteristics, including the fact that the market does not smooth exogenous shocks as effectively as if the central limit theorem applied, thereby providing a mechanism to explain observed macroeconomic instability. The state is also robust to parameter changes and details of model structure, and because of its appearance in a wide variety of apparently unrelated disciplines, appears to be a very general organizing principle. Its application here suggests how systematic long-run behaviour, that is entirely different from typical economic equilibria, might arise and be detected in complex dynamic spatial competition. This work represents the first known marketing model that demonstrates SOC.
Language English
Format Working paper
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