Single Product Firms Vs. A Supermarket: A Spatial Competition Model

I develop a model of competition between small downtown retailers and a supermarket. Variety-loving consumers are uniformly distributed across a one-dimensional city, which accommodates a shopping street composed of non-atomic retailing firms, and a supermarket. I aim to study competition between these two retailing bodies and how it affects the urban structure. Unlike Ushchev, Sloev and Thisse (2015), who work with a similar model involving a shopping mall instead of a supermarket, I focus on studying the consequences of internalizing cannibalization effects by the supermarket. I find that in case of low transport costs the supermarket will enter the market and hollow out of the downtown retail sector only if the product range expansion efficiency of a supermarket is high enough relative to the one of the downtown shopping street. If the transport costs are high enough, both centers of commerce coexist at equilibrium.