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
Date Written: December 1, 2016
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.
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