Imitation in location choice

Imitation is natural to man from childhood, one of his advantages over the lower
animals being this, that he is the most imitative creature in the world, and learns at
first by imitation. —Aristotle (Poetics, Chapter IV)

1 Introduction

This paper presents a model of information acquisition and location choice among
profit-maximizing firms. In contrast to theories based on the assumption of first-
mover advantage, the model focuses on the benefit that second movers enjoy by
conditioning on first movers’ locations. Such opportunities for utilizing information
implicit in the locations of other firms give rise to the possibility of imitation, quan-
tified as the extent to which second movers substitute away from costly acquisition
of private information into costless observation of first movers.

One motivation for modeling imitation in location choice is to investigate the pos-
sibility of behavioral barriers to redevelopment in older, low-income neighborhoods
within central cities. Brueckner and Rosenthal (2005) identify age of housing stock
as a key predictor of future changes in neighborhood income, which naturally leads
to comparisons of factors that influence new development in suburbs versus redevel-
opment within central cities. Observing low-income neighborhoods in central cities
with very little retail activity, the standard neoclassical model suggests that, despite
advantages such as lower rents and fewer competitors, these areas are passed over for
good reason—because firms cannot profitably operate stores there. In contrast, the
hypothesis considered here is that small firms use an imitation heuristic for choosing
locations, which succeeds at maximizing profits in environments with abundant in-
formation such as thriving big-box developments in the suburbs, but fails to exploit
genuinely profitable opportunities in urban environments with little or no available in-

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