Limited Location Options: Measuring Spatial Interactions among Retailers Under Zoning Restrictions

This article presents an innovative approach to study spatial interactions among firms under zoning restrictions. For this purpose, we extend a measure of bivariate spatial association to explicitly account for limited location options as well as spatial dependence. The statistic is applied to study spatial location patterns of firms in the pharmacies and drugstores industry in three different cities using precise location and zoning data. We find that failing to account for zoning can lead to spurious findings. The results suggest that while consumers may perceive that pharmacies are often located next to each other, when accounting for zoning firms locate independently given their restricted location choices.