The Annals of Regional Science

, Volume 58, Issue 1, pp 1–19 | Cite as

Small business and the self-organization of a marketplace

  • Ke Ding
  • Toshitaka Gokan
  • Xiwei ZhuEmail author
Original Paper


In many developing countries such as China, the typical marketplace is a cluster of small shops or booths. We investigate an economic model in which circular causality, including search and matching between buyers and sellers, forms agglomeration forces. We find that an authoritative third party that reduces search costs is important in sustaining a large marketplace. However, it is unnecessary to reduce search costs to zero. Finally, the low capital requirement of setting up a firm helps to sustain a large marketplace owing to its increased product heterogeneity.

JEL Classification

D04 R12 



Zhu acknowledges the financial support from the National Natural Science Foundation of China (Grants-in-Aid for Science Research 71373235 and 71503232). An earlier version of this paper was entitled “Search, matching, and self-organization of a marketplace” (Discussion paper no. 396, Institute of Developing Economies-JETRO, 2013, Japan).


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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Institute of Developing Economies - Japan External Trade Organization (IDE-JETRO)Chiba CityJapan
  2. 2.School of Economics and Center for Research of Private EconomyZhejiang UniversityHangzhouPeople’s Republic of China

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