Working Paper: CEPR ID: DP10273
Authors: Victor Aguirregabiria; Gustavo Vicentini
Abstract: We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store retailers. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We develop an algorithm to approximate a Markov Perfect Equilibrium in our model, and propose a procedure for the estimation of the parameters of the model using panel data on number of stores, prices, and quantities at multiple geographic locations within a city. We also present numerical examples to illustrate the model and algorithm.
Keywords: cannibalization; industry dynamics; spatial competition; spatial preemption; store location; sunk costs
JEL Codes: C73; L13; L81; R10; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| store openings/closings (L81) | market structure and competition (L11) |
| exit strategies (L14) | spatial preemption (R32) |
| consumer transportation costs (L91) | store competition (L81) |
| store proximity (R32) | competition (L13) |