Insularity and economies of density: analyzing the efficiency of a logistic network using an econometric simulation-based approach

This paper explores the challenges posed by insularity to economic development and overall welfare from a novel viewpoint. Using a multidisciplinary approach, we investigated the additional burden that this permanent geographical condition poses to retailers whose profit-maximizing strategy relies upon the exploitation of the economies of density. The analysis results show that a retailer finds it convenient to develop its network on the mainland, exploiting the proximity of his stores and distribution centres. Further, it shows that insularity, an unlikely similar condition such as peripherality and remoteness, prevents retailers from expanding their network on an island, thus lowering competition and affecting consumers’ welfare.