Consumer search and firm location: Theory and evidence from the garment sector in Uganda

Research Note
Published on 10 March 2023
Authors
Anna Vitali

Abstract

How do consumers’ information frictions affect firms’ choice of location within a city? This paper combines an original data collection and a quantitative equilibrium model of consumer search and firm location to answer this question. It finds that information frictions (i) contribute to 41% of the concentration of sales in the central part of Kampala and (ii) limit the ability of high-quality firms to attract customers, allowing 37% of lower-quality competitors to survive. Counterfactual scenarios show that the introduction of an e-commerce platform would induce a large share of firms to disperse, while also causing customers to shift to high-quality businesses. By contrast, commonly adopted decongestion policies that discourage central clusters without solving information frictions would disproportionately harm high-quality firms by increasing consumers’ costs of finding high-quality products.

Authors

Anna Vitali

University College London