The WSJ reports that Whole Foods has opened a store in Detroit. In quickly reading the article, I could tell if the firm was offered local incentives to open there or whether this was a "free market" calculation. There is an interesting piece of economics here. The Whole Foods opened in a gentrifying hip part of the city that is close to the universities and has a rising educational attainment among its neighbors. This would appear to be a prime example of Joel Waldfogel's idea of consumption externalities. In the presence of a fixed cost to opening a business, businesses such as Whole Foods will only open if there is sufficient local demand. So, when similar people locate close together this can lead to stores they want to frequent to open in their area. In this sense, a type of "snowball" occurs as the neighborhood becomes even more desirable. Real estate owners in such areas are the residual claimant and benefit from this dynamic. Reduced crime goes a long way to triggering one of these cascades.
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03/10/2012
Whole Foods Opens a Store in Center City Detroit
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