CFDP 1992

Buying Locally

Author(s): 

Publication Date: March 2015

Pages: 33

Abstract: 

“Buy local” arrangements encourage members of a community or group to patronize one another rather than the external economy. They range from formal mechanisms such as local currencies to informal “I’ll buy from you if you buy from me” arrangements, and are often championed on social or environmental grounds. We show that in a monopolistically competitive economy, buy local arrangements can have salutary effects even for selfish agents immune to social or environmental considerations. Buy local arrangements effectively allow firms to exploit the equilibrium price-cost gap to profitably expand their sales at the going price.

Keywords: 

Buy local, Local currency, Trading favors, Reciprocity, Monopolistic Competition

JEL Classification Codes:  D43, D85, L14, R12