Imitation in location choice

In contrast to economics, the administrative management literature has devoted
considerable attention to imitation in location choice (Guillen, 2002; Haunschild,
1993; Haveman, 1993). Descriptive models in this literature focus on how exit and
entry of other firms allow managers to make inferences about expected levels of prof-
itability, leading to correlated entry and exit decisions across firms (Baum, Li and
Usher, 2000; Miner and Haunschild, 1997), which is consistent with the formal model
presented in this paper. Another reason for imitation mentioned in this literature
is sociological imperatives to adhere to norms (Abrahamson and Rosenkopf, 1993),
according to which it pays to imitate peer decisions even in the absence of internal
reasons for adopting strategies that peer firms have adopted. Legitimacy is put for-
ward as still another reason why managers may eschew independent approaches in
favor of imitation of peers whose actions are perceived as legitimate (DiMaggio and
Powell, 1983; Haunschild and Miner, 1997; Fligstein, 1985). An interesting aspect of
this literature is that, in many of these models, the more predictable the environment,
the stronger the incentive to imitate (Argote, Beckman and Epple, 1990), which is
opposite of the model in this paper. There is also a vast operations research literature
applying constrained optimization to spatial decision problems.

Empirical accounts from interview studies (Schwartz, 1987, 2004; Bewley, 1999;
Berg, 2007) favor the position that firms rely on simplifying rules of thumb, or heuris-
tics. Wiessbourd (1999) reports that businesses in Chicago use simple rules of thumb
to decide on locations, which work well in environments with lots of information,
but tend to reinforce negative stereotypes and leave profitable opportunities unex-
ploited in low information environments. Anecdotal evidence corroborates the large
role of imitation put forward in this paper. For example, according to one individual
involved in location decisions for the German discount supermarket chain Lidl, its
location decisions follow a simple rule of thumb: build a store wherever Aldi, Lidl ’ s

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