Dynamic Spatial Competition between Multi-Store Firms

The Journals of Industrial Economics, Vol 64, Issue 4 (December 2016)

44 Pages Posted: 28 Aug 2006 Last revised: 30 Oct 2016

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Gustavo Vicentini

Boston University

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2016

Abstract

We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store firms. 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 provide an algorithm to compute Markov Perfect Equilibria (MPE) in our model. We conduct several numerical experiments to study how the propensity of multi-store retailers to spatial preemptive behavior depends on the magnitude of entry costs, exit value and transportation costs.

Keywords: Spatial competition, Market dynamics, Sunk costs, Spatial preemptive behavior.

JEL Classification: C73, L13, L81, R10, R30.

Suggested Citation

Aguirregabiria, Victor and Vicentini, Gustavo, Dynamic Spatial Competition between Multi-Store Firms (December 1, 2016). The Journals of Industrial Economics, Vol 64, Issue 4 (December 2016), Available at SSRN: https://ssrn.com/abstract=926508 or http://dx.doi.org/10.2139/ssrn.926508

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

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215

HOME PAGE: http://people.bu.edu/tijella/

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