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Discussion Paper Details

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Title: Dynamic Spatial Competition Between Multi-Store Firms

Author(s): Victor Aguirregabiria and Gustavo Vicentini

Publication Date: November 2014

Keyword(s): cannibalization, industry dynamics, spatial competition, spatial preemption, store location and sunk costs

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Aguirregabiria, V and Vicentini, G. 2014. 'Dynamic Spatial Competition Between Multi-Store Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10273