IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_1289.html
   My bibliography  Save this paper

Market Concentration and Product Variety under Spatial Competition: Evidence from Retail Gasoline

Author

Listed:
  • Georg Goetz
  • Klaus Gugler

Abstract

We show that for a spatially differentiated economy reduced product variety is the likely outcome of mergers except in cases where exit costs in relation to (outlet-specific) fixed costs are high. Our empirical analysis of the Austrian retail gasoline market confirms that increases in concentration reduce product variety. Ignoring this product variety effect is likely to lead to an underestimate of market power in structural merger analysis.

Suggested Citation

  • Georg Goetz & Klaus Gugler, 2004. "Market Concentration and Product Variety under Spatial Competition: Evidence from Retail Gasoline," CESifo Working Paper Series 1289, CESifo.
    • Handle: RePEc:ces:ceswps:_1289
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1289.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-442, June.
    2. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
    3. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
    4. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    5. Ivaldi, Marc & Verboven, Frank, 2005. "Quantifying the effects from horizontal mergers in European competition policy," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 669-691, December.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057, Elsevier.
    8. 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.
    9. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence from Radio Broadcasting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 1009-1025.
    10. Gerhard Clemenz & Klaus Gugler, 2006. "Locational choice and price competition: some empirical results for the austrian retail gasoline market," Empirical Economics, Springer, vol. 31(2), pages 291-312, June.
    11. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    12. Evans, William N & Froeb, Luke M & Werden, Gregory J, 1993. "Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures," Journal of Industrial Economics, Wiley Blackwell, vol. 41(4), pages 431-438, December.
    13. John S. Heywood & Kristen Monaco & R. Rothschild, 2001. "Spatial Price Discrimination and Merger: The N-Firm Case," Southern Economic Journal, John Wiley & Sons, vol. 67(3), pages 672-684, January.
    14. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    15. Margaret E. Slade, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(2), pages 257-276.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elena Argentesi & Paolo Buccirossi & Roberto Cervone & Tomaso Duso & Alessia Marrazzo, 2018. "Price or Variety? An Evaluation of Mergers Effects in Grocery Retailing," CESifo Working Paper Series 7035, CESifo.
    2. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, vol. 66(1), pages 22-32.
    3. Ewa, Lechman, 2010. "Concentration in ICTs sector – cross country analysis," MPRA Paper 37488, University Library of Munich, Germany.
    4. Pennerstorfer, Dieter & Weiss, Christoph, 2013. "Spatial clustering and market power: Evidence from the retail gasoline market," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 661-675.
    5. Chrysovalantou Milliou & Joel Sandonis, 2018. "Manufacturer Mergers and Product Variety in Vertically Related Markets," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 1-24, March.
    6. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo.
    7. Argentesi, Elena & Buccirossi, Paolo & Cervone, Roberto & Duso, Tomaso & Marrazzo, Alessia, 2016. "The effect of retail mergers on prices and variety: An ex-post evaluation," DICE Discussion Papers 225, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Nikolic, Adriana & Weiss, Christoph, 2014. "Spatial interactions in location decisions: Empirical evidence from a Bayesian spatial probit model," Department of Economics Working Paper Series 177, WU Vienna University of Economics and Business.
    9. Argentesi, Elena & Buccirossi, Paolo & Cervone, Roberto & Duso, Tomaso & Marrazzo, Alessia, 2021. "The effect of mergers on variety in grocery retailing," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    10. Andrew Eckert & Heather Eckert, 2014. "Regional Patterns in Gasoline Station Rationalization in Canada," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 99-122, March.
    11. Ralph Siebert, 2016. "The Impact of Horizontal Mergers on Market Structure: Evidence from the Semiconductor Industry," CESifo Working Paper Series 5911, CESifo.
    12. Christos Genakos & Tobias Kretschmer & Ambre Nicolle, 2021. "Strategic confusopoly: evidence from the UK mobile market," CEP Discussion Papers dp1810, Centre for Economic Performance, LSE.
    13. Argentesi, Elena & Buccirossi, Paolo & Cervone, Roberto & Duso, Tomaso & Marrazzo, Alessia, 2021. "The effect of mergers on variety in grocery retailing," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 79, pages 1-19.
    14. Chiang-Ming Chen & Chia-Yu Yeh & Jin-Li Hu, 2011. "Influence of Uncertain Demand on Product Variety: Evidence from the International Tourist Hotel Industry in Taiwan," Tourism Economics, , vol. 17(6), pages 1275-1285, December.
    15. Wesley Blundell & Kyle Wilson, 2023. "Acquisitions, product variety, and distribution in the U.S. craft beer industry," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 1053-1076, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, vol. 66(1), pages 22-32.
    2. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164, March.
    3. Richards, Timothy J. & Acharya, Ram N. & Kagan, Albert, 2008. "Spatial competition and market power in banking," Journal of Economics and Business, Elsevier, vol. 60(5), pages 436-454.
    4. Leemore Dafny & Mark Duggan & Subramaniam Ramanarayanan, 2012. "Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry," American Economic Review, American Economic Association, vol. 102(2), pages 1161-1185, April.
    5. Devin Garcia & Levent Kutlu & Robin C. Sickles, 2022. "Market Structures in Production Economics," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 13, pages 537-574, Springer.
    6. Richards, Timothy J. & Hamilton, Stephen F. & Patterson, Paul M., 2010. "Spatial Competition and Private Labels," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), pages 1-26, August.
    7. Leheyda, Nina, 2008. "Market Power, Multimarket Contact and Pricing: Some Evidence from the US Automobile Market," ZEW Discussion Papers 08-118, ZEW - Leibniz Centre for European Economic Research.
    8. Richard Schmalensee, 2012. "“On a Level with Dentists?” Reflections on the Evolution of Industrial Organization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 157-179, November.
    9. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    10. Marcel Canoy & S. Onderstal, 2003. "Tight oligopolies: in search of proportionate remedies," CPB Document 29.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    11. Marcel Canoy & S. Onderstal, 2003. "Tight oligopolies: in search of proportionate remedies," CPB Document 29, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    13. Cotterill, Ronald W & Putsis, William P, Jr & Dhar, Ravi, 2000. "Assessing the Competitive Interaction between Private Labels and National Brands," The Journal of Business, University of Chicago Press, vol. 73(1), pages 109-137, January.
    14. K. Sudhir, 2001. "Structural Analysis of Manufacturer Pricing in the Presence of a Strategic Retailer," Marketing Science, INFORMS, vol. 20(3), pages 244-264, October.
    15. Bernd Jost, 2012. "Price Dispersion, Search Costs and Spatial Competition: Evidence from the Austrian Retail Gasoline Market," NEURUS papers neurusp166, NEURUS - Network of European and US Regional and Urban Studies.
    16. Alfredo Martín-Oliver, 2018. "Bank Competition with Financing and Savings Substitutes," Journal of Financial Services Research, Springer;Western Finance Association, vol. 54(2), pages 207-241, October.
    17. Luiz Humberto Cavalcante Veiga, 2006. "Diferenciação Horizontal e Poder de Mercado: Os Efeitos do E-Banking sobre as Tarifas Bancárias," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 7(2), pages 365-393.
    18. Patrick Dennis & Kristopher Gerardi & Carola Schenone, 2019. "Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry," FRB Atlanta Working Paper 2019-15, Federal Reserve Bank of Atlanta.
    19. Vishal Singh & Ting Zhu, 2008. "Pricing and Market Concentration in Oligopoly Markets," Marketing Science, INFORMS, vol. 27(6), pages 1020-1035, 11-12.
    20. Sofia Berto Villas-Boas, 2007. "Vertical Relationships between Manufacturers and Retailers: Inference with Limited Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 625-652.

    More about this item

    Keywords

    spatial product differentiation; retail gasoline; mergers; concentration;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1289. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.