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Market definition with differentiated products: a spatial competition application

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  • Javier Elizalde

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Abstract

This paper applies the ‘hypothetical monopolist’ test of market definition to a retail market with products differentiated by means of location and other dimensions. The test for defining the relevant product and geographic market follows the conditions required by the European Union Competition Law and so it takes into account both demand- and supply-side substitution. The empirical model using sales data from a set of movie theatres in the North of Spain, incorporating the observed locations of consumers vis-à-vis the stores, shows that empirical tests of market definition may lead to an implausible (too restrictive) definition of the relevant market if supply-side substitution is not accounted for. It also shows that the main driver of competition in retail markets with differentiated products is not price but product characteristics. Copyright Springer Science+Business Media, LLC 2013

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File URL: http://hdl.handle.net/10.1007/s10657-011-9260-9
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Bibliographic Info

Article provided by Springer in its journal European Journal of Law and Economics.

Volume (Year): 36 (2013)
Issue (Month): 3 (December)
Pages: 471-521

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Handle: RePEc:kap:ejlwec:v:36:y:2013:i:3:p:471-521

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Web page: http://www.springerlink.com/link.asp?id=100264

Related research

Keywords: Market definition; Spatial competition; Horizontal product differentiation; Supply-side substitution; Demand estimation; L11; D43; K21;

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References

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  1. Robert Ekelund & George Ford & John Jackson, 1999. "Is Radio Advertising a Distinct Local Market? An Empirical Analysis," Review of Industrial Organization, Springer, vol. 14(3), pages 239-256, May.
  2. Slade, Margaret E, 1986. "Exogeneity Tests of Market Boundaries Applied to Petroleum Products," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 291-303, March.
  3. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, December.
  4. Baker, Jonathan B. & Bresnahan, Timothy F., 1988. "Estimating the residual demand curve facing a single firm," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 283-300.
  5. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
  6. Javier Elizalde, 2012. "A theoretical approach to market definition analysis," European Journal of Law and Economics, Springer, vol. 34(3), pages 449-475, December.
  7. Scheffman, David T & Spiller, Pablo T, 1987. "Geographic Market Definition under the U.S. Department of Justice Merger Guidelines," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 123-47, April.
  8. Feenstra, Robert C & Levinsohn, James A, 1995. "Estimating Markups and Market Conduct with Multidimensional Product Attributes," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 19-52, January.
  9. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  10. Margaret E. SLADE, 2005. "The Role of Economic Space in Decision Making," Annales d'Economie et de Statistique, ENSAE, issue 77, pages 1-20.
  11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  12. Steffen Brenner, 2005. "Hotelling Games with Three, Four, and More Players," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 851-864.
  13. Argentesi, Elena & Ivaldi, Marc, 2005. "Market Definition in Printed Media Industry: Theory and Practice," IDEI Working Papers 376, Institut d'Économie Industrielle (IDEI), Toulouse.
  14. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
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Cited by:
  1. Javier Elizalde, 2012. "A theoretical approach to market definition analysis," European Journal of Law and Economics, Springer, vol. 34(3), pages 449-475, December.

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