How small are small markets? Local market size for child care services

In this article, we propose an innovative way of delineating local markets based on easily accessible data. We apply this concept to 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 250 m x 250 m 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 local markets for day care services in metropolitan regions are indeed very small (about 500 m or 550 yards).