The Location of Sales Offices and the Attraction of Cities

This paper examines how manufacturers locate sales offices across cities. Sales office costs are assumed to have four components: a fixed cost, a frictional cost for out-of-town sales, a cost-reducing knowledge spillover related to city size, and an idiosyncratic match quality for each firm-city pai...

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Bibliographic Details
Published inThe Journal of political economy Vol. 113; no. 3
Main Author Holmes, Thomas J
Format Journal Article
LanguageEnglish
Published University of Chicago Press, Journals Division 01.06.2005
Subjects
Costs
School Business Relationship
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Summary:This paper examines how manufacturers locate sales offices across cities. Sales office costs are assumed to have four components: a fixed cost, a frictional cost for out-of-town sales, a cost-reducing knowledge spillover related to city size, and an idiosyncratic match quality for each firm-city pair. A simple theoretical model is developed and is estimated using data from the Census of Wholesale Trade. The factors emphasized in the home market effect literature, namely, fixed costs and frictional costs, are found to play an important role in location decisions. Match quality also matters. The results for knowledge spillovers are mixed.
ISSN:0022-3808
DOI:10.1086/429135