Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry
AbstractUsing a micro-level dataset of wind turbine installations in Denmark and Germany, we estimate a structural oligopoly model with cross-border trade and heterogeneous firms. Our approach separately identifies border-related from distance-related variable costs and bounds the fixed cost of exporting for each firm. Variable border costs are large: equivalent to roughly 400 kilometers (250 miles) in distance costs, which represents 40 to 50 percent of the average exporter's total delivery costs. Fixed costs are also important; removing them would increase German firms' market share in Denmark by 10 percentage points. Counterfactual analysis indicates that completely eliminating border frictions would increase total welfare in the wind turbine industry by 5 percent in Denmark and 10 percent in Germany.
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Bibliographic InfoPaper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1228.
Length: 47 pages
Date of creation: Oct 2012
Date of revision:
Trade costs; oligopoly; spatial competition; constrained MLE.;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-BEC-2012-10-13 (Business Economics)
- NEP-URE-2012-10-13 (Urban & Real Estate Economics)
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