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Trade flows in a spatial oligopoly: gravity fits well, but what does it explain?

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  • Alberto Salvo

Abstract

Large distance and border effects on trade flows in some industries may result from the collusive division of geographic markets. In the Brazilian cement industry, traditional gravity equations fit the data well, yet limited regional flows are due to firms' strategic behaviour. Thanks to a unique institutional setting and an unusually rich data set, I directly control for trade costs, which - despite their importance - cannot account for the observed segmentation of local markets at current prices. The paper highlights how collusive behaviour can magnify the effects of distance, as firms use geography to coordinate on higher prices and less cross-hauling.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 43 (2010)
Issue (Month): 1 (February)
Pages: 63-96

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Handle: RePEc:cje:issued:v:43:y:2010:i:1:p:63-96

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Cited by:
  1. A. Kerem Cosar & Paul L. E. Grieco & Felix Tintelnot, 2012. "Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry," Koç University-TUSIAD Economic Research Forum Working Papers 1228, Koc University-TUSIAD Economic Research Forum.

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