DP10273 Dynamic Spatial Competition Between Multi-Store Firms
|Author(s):||Victor Aguirregabiria, Gustavo Vicentini|
|Publication Date:||November 2014|
|Keyword(s):||cannibalization, industry dynamics, spatial competition, spatial preemption, store location, sunk costs|
|JEL(s):||C73, L13, L81, R10, R30|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=10273|
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.