Imitation in location choice

information and minimal at the extremes.

Interest in theoretical mechanisms that lead to socially inefficient spatial lock-in
among retailers draws, in part, on recent evidence that stores such as Starbucks and
Home Depot have earned profits far in excess of what their own demand forecast
models predicted by investing in long overlooked, low-income neighborhoods previ-
ously regarded as unprofitable (Weissbourd, 1999; Helling and Sawicki, 2003; Sabety
and Carlson, 2003). For example, Vice President of Starbuck’s Store Development
Cydnie Horwat writes: “Our Urban Coffee Opportunities joint venture has essentially
shown that Starbucks can penetrate demographically diverse neighborhoods in un-
derserved communities, such as our store in Harlem, which is not something that we
had previously looked at” (Francica, 2000).

This raises questions. How could Starbucks have overlooked a profitable oppor-
tunity for so long, and why did it require a new, joint initiative to discover that the
coffee giant could operate profitably in ethnically mixed, low income neighborhoods?
Are neighborhoods in central cities that retailers avoid really less profitable, or do
interdependencies among firms’ location decisions lead to inefficient lock-in at a sta-
tus quo biased against such neighborhoods simply because firms have decided against
them in the past? And finally, should we be surprised that sophisticated firms, even
those that conduct extensive market research, base location decisions primarily on ob-
served choices of other firms instead of independently weighing the costs and benefits
associated with each of many candidates drawn from a large consideration set?

The model presented below suggests that we should not be surprised to find im-
itation heuristics in widespread use among business decision makers responsible for
choosing locations because, in many environments, imitation is consistent with profit
maximization. The model also demonstrates and provides a means of quantifying the
social cost of imitation in location choice. The behavioral mechanism of imitation as

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