RIEB Seminar (Jointly supported by:Rokko Forum and Grant-in-Aid for Scientific Research (B))
Identifying Neighborhood Effects among Firms: Evidence from Location Lotteries of the Tokyo Fish Market
The idea that firms beneft from the characteristics of neighboring firms is central to the economics of agglomeration. A fundamental challenge in investigating such mechanisms arises from economic agents' self-selection into locations. This makes it dificult to distinguish whether certain neighboring firms allow frms to perform better, or such firms just cluster together. We overcome the challenge by analyzing neighborhood effects among intermediate wholesalers located in the Tokyo Tsukiji Fish Market and by exploiting a unique feature of their shop locations within the market: their locations are determined every 4-10 years by the relocation lotteries. First, we confirm that their shop locations are indeed randomly distributed. Then, we find that the characteristics of neighboring firms significantly affect firm performance.
Specifically, both the diversity of the neighboring firms and the fraction of neighboring firms selling similar products positively affect the performance of small-size and specialized firms. Our results confirm the key theoretical mechanism of the formation of market places: agglomeration saves the search cost of buyers.