DISCOUNT POINT SYSTEMS AND VITALIZATION OF COMMERCIAL DISTRICTS WITH SMALL SHOPS

Abstract

  In this paper, a market competition between the commercial districts with small-sized shops and the other new shopping centers with respect to price strategies. When the consumers purchase in multiple retails, there occurs the externality among the profits of each shop through the consumers' shopping choice behaviors. The spatial competition with demand externality results in the inefficient market structure where the old enjoys relatively smaller market size than the optimal. The paper shows that the old shopping center can expand its market size by issuing the common discount points to the customers, by which the respective shop in the old can internalize their demand externality. The paper also concludes that the price binding mechanisms should be introduced to sustain the price coordination among the shops in the long run.