Working Paper: CEPR ID: DP10410
Authors: Victor Aguirregabiria; Junichi Suzuki
Abstract: We survey the recent empirical literature on structural models of market entry and spatial competition in oligopoly retail industries. We start with the description of a framework that encompasses various models that have been estimated in empirical applications. We use this framework to discuss important specification assumptions in this literature: firm heterogeneity; specification of price competition; structure of spatial competition; firms' information; dynamics; multi-store firms; and structure of unobservables. We next describe different types of datasets that have been used in empirical applications. Finally, we discuss econometric issues that researchers should deal with in the estimation of these models, including multiple equilibria and unobserved market heterogeneity. We comment on the advantages and limitations of alternative estimation methods, and how these methods relate to identification restrictions. We conclude with some issues and topics for future research.
Keywords: Econometrics of Discrete Choice Games; Market Entry and Exit; Retail Industries; Spatial Competition
JEL Codes: L11; L13; L81; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market conditions (P42) | firm entry decision (L26) |
| entry costs (L11) | number of stores in a market (L81) |
| firm entry strategies (L10) | market outcomes (P42) |
| expected profit from being active (G11) | firm entry decision (L26) |
| profit from shutting down (J65) | firm entry decision (L26) |