How small are small markets? Location choice and geographical market size for child care services

In this article we propose an innovative way of delineating geographical markets based on easily accessible data. We apply this concept for the day care industry and investigate providers' location choices relative to local market characteristics to evaluate the widespread presumption that local markets for child care services are geographically very small. Using a panel of all day care centers for the metropolitan region of Vienna, Austria, for nearly a decade, as well as geographically extremely disaggregated data on the spatial distribution of children under the age of six at the 250m x 250m grid cell level, we find that the location of children and day care centers are strongly related, but this relationship diminishes as soon as the distance between a child's place of residence and the day care center's location increases. We conclude that geographical markets for day care services in metropolitan regions are indeed very small (about 500m or 550 yards).