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Making Friends with Your Neighbors? Agglomeration and Tacit Collusion in The Lodging Industry

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Author Info

  • Li Gan

    (Texas A&M University and NBER)

  • Manuel A. Hernandez

    (IFPRI)

Abstract

Agglomeration is a location pattern frequently observed in service industries such as hotels. This paper empirically examines whether agglomeration facilitates tacit collusion in the lodging industry using a quarterly data set of hotels in Texas. We jointly model a price and occupancy rate equation under a switching regression model to identify a collusive and noncollusive regime. The estimation results indicate that clustered hotels have a higher probability of being in the potential collusive regime than isolated properties in the same town. The identification of a collusive regime is also consistent with other factors considered to affect the sustainability of tacit collusion. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 3 (July)
Pages: 1002-1017

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Handle: RePEc:tpr:restat:v:95:y:2013:i:3:p:1002-1017

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Web page: http://mitpress.mit.edu/journals/

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Related research

Keywords: collusion; agglomeration; lodging industry; switching regression model;

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References

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  1. John Connor, 2005. "Collusion and price dispersion," Applied Economics Letters, Taylor & Francis Journals, vol. 12(6), pages 335-338.
  2. Janet S. Netz & Beck A. Taylor, 2002. "Maximum Or Minimum Differentiation? Location Patterns Of Retail Outlets," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 162-175, February.
  3. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics.
  4. Friedman, J. & Thisse, J-F., 1991. "Infinite horizon spatial duopoly with collusive pricing and noncollusive location choice," CORE Discussion Papers 1991004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
  6. Christopher R. Knittel & Victor Stango, 2001. "Price ceilings as focal points for tacit collusion: evidence from credit cards," Working Paper Series WP-01-12, Federal Reserve Bank of Chicago.
  7. Frank Kleibergen & Richard Paap, 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Tinbergen Institute Discussion Papers 03-003/4, Tinbergen Institute.
  8. Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
  9. Pinkse, Joris & Slade, Margaret E., 1998. "Contracting in space: An application of spatial statistics to discrete-choice models," Journal of Econometrics, Elsevier, vol. 85(1), pages 125-154, July.
  10. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May.
  11. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring.
  13. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
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Citations

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Cited by:
  1. Li Gan & Manuel A. Hernandez & Yanyan Liu, 2013. "Group Lending with Heterogeneous Types," NBER Working Papers 18847, National Bureau of Economic Research, Inc.
  2. Cappenberg, Christina, 2013. "Staatliche Förderung regionaler Unternehmensnetzwerke: Legitimation nationaler Clusterpolitik," Arbeitspapiere 140, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.
  3. Xi Wu & Li Gan, 2013. "Multiple Dimensions of Private Information in Life Insurance Markets," NBER Working Papers 19629, National Bureau of Economic Research, Inc.

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