Dynamic Spatial Competition between Multi-Store Firms

44 Pages Posted: 2 Dec 2014

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Gustavo Vicentini

Analysis Group, Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: November 2014

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 Classification: C73, L13, L81, R10, R30

Suggested Citation

Aguirregabiria, Victor and Vicentini, Gustavo, Dynamic Spatial Competition between Multi-Store Firms (November 2014). CEPR Discussion Paper No. DP10273, Available at SSRN: https://ssrn.com/abstract=2532941

Victor Aguirregabiria (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
4169784358 (Phone)

HOME PAGE: http://individual.utoronto.ca/vaguirre/

Gustavo Vicentini

Analysis Group, Inc. ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199

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