Dynamic Spatial Competition between Multi‐Store Retailers

45 Pages Posted: 28 May 2020

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Gustavo Vicentini

Analysis Group, Inc.

Date Written: December 2016

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 and cost conditions, the number of competitors at different locations, and on location‐specific private‐information shocks. The model distinguishes multiple forces in the spatial configuration of store networks, such as cannibalization of revenue between stores of the same retail chain, economies of density, competition, consumer transportation costs, or positive demand spillovers from other stores. 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 a numerical example to illustrate the model and algorithm.

Suggested Citation

Aguirregabiria, Victor and Vicentini, Gustavo, Dynamic Spatial Competition between Multi‐Store Retailers (December 2016). The Journal of Industrial Economics, Vol. 64, Issue 4, pp. 710-754, 2016, Available at SSRN: https://ssrn.com/abstract=3609398 or http://dx.doi.org/10.1111/joie.12112

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
45
PlumX Metrics