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Making friends with your neighbors? Agglomeration and tacit collusion in the lodging industry

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  • Li Gan
  • Manuel A. Hernandez

Abstract

Agglomeration is a location pattern frequently observed in service industries such as hotels. This paper empirically examines if agglomeration facilitates tacit collusion in the lodging industry using a quarterly dataset of hotels that operated in rural areas across Texas between 2003 and 2005. We jointly model a price and occupancy rate equation under a switching regression model to endogenously identify a collusive and non-collusive 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 collusion like cluster size, seasonality and firm size, and the results are robust to alternative cluster definitions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16739.

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Date of creation: Jan 2011
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Publication status: published as Li Gan & Manuel A. Hernandez, 2013. "Making Friends with Your Neighbors? Agglomeration and Tacit Collusion in The Lodging Industry," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 1002-1017, July.
Handle: RePEc:nbr:nberwo:16739

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  1. John M. Connor, 2004. "Collusion And Price Dispersion," Working Papers, Purdue University, College of Agriculture, Department of Agricultural Economics 04-14, Purdue University, College of Agriculture, Department of Agricultural Economics.
  2. Kleibergen, F.R. & Paap, R., 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Institute Research Papers EI 2003-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Tacit Collusion," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 186, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 20(2), pages 189-212, September.
  5. Irmen, A. & Thisse, J.-F., . "Competition in multi-characteristics spaces: Hotelling was almost right," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1305, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Christopher R. Knittel & Victor Stango, 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards," American Economic Review, American Economic Association, American Economic Association, vol. 93(5), pages 1703-1729, December.
  7. Friedman, J. & Thisse, J-F., 1991. "Infinite horizon spatial duopoly with collusive pricing and noncollusive location choice," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1991004, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 526, The Johns Hopkins University,Department of Economics.
  9. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers, UCLA Department of Economics 658612000000000081, UCLA Department of Economics.
  10. Pinkse, Joris & Slade, Margaret E., 1998. "Contracting in space: An application of spatial statistics to discrete-choice models," Journal of Econometrics, Elsevier, Elsevier, vol. 85(1), pages 125-154, July.
  11. 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.
  12. 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.
  13. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(3), pages 467-486, May.
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Cited by:
  1. Xi Wu & Li Gan, 2013. "Multiple Dimensions of Private Information in Life Insurance Markets," NBER Working Papers 19629, National Bureau of Economic Research, Inc.
  2. Gan, Li & Hernandez, Manuel A. & Liu, Yanyan, 2013. "Group lending with heterogeneous types:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 1268, International Food Policy Research Institute (IFPRI).
  3. Cappenberg, Christina, 2013. "Staatliche Förderung regionaler Unternehmensnetzwerke: Legitimation nationaler Clusterpolitik," Arbeitspapiere 140, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.

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