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Dynamic Spatial Competition Between Multi-Store Firms

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Author Info

  • Victor Aguirregabiria
  • Gustavo Vicentini

Abstract

We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store firms. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We provide an algorithm to compute Markov Perfect Equilibria (MPE) in our model. We conduct several numerical experiments to study how the propensity of multi-store retailers to spatial preemptive behavior depends on the magnitude of entry costs, exit value and transportation costs.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-253.

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Length: pages
Date of creation: 29 Aug 2006
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Handle: RePEc:tor:tecipa:tecipa-253

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Related research

Keywords: Spatial competition; Market dynamics; Sunk costs; Spatial preemptive behavior.;

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References

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  1. Aguirregabiria, Victor & Vicentini, Gustavo, 2007. "Software for the Computation of Markov-Perfect Equilibria in a Dynamic Game of Store Location by Multi-Store Firms," MPRA Paper 17035, University Library of Munich, Germany.
  2. Fernando Bernstein & A. Gürhan Kök, 2009. "Dynamic Cost Reduction Through Process Improvement in Assembly Networks," Management Science, INFORMS, vol. 55(4), pages 552-567, April.
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  7. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation of Dynamic Discrete Games," Industrial Organization 0406006, EconWPA.
  8. Paul Ellickson & Beresteanu Arie, 2005. "The Dynamics of Retail Oligopolies," 2005 Meeting Papers 829, Society for Economic Dynamics.
  9. Thomas J. Holmes, 2006. "The Diffusion of Wal-Mart and Economies of Density," 2006 Meeting Papers 15, Society for Economic Dynamics.
  10. Tabuchi, Takatoshi, 1994. "Two-stage two-dimensional spatial competition between two firms," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 207-227, April.
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  14. Hay, D A, 1976. "Sequential Entry and Entry-Deterring Strategies in Spatial Competition," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 240-57, July.
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  18. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
  19. B.Curtis Eaton & Richard G. Lipsey, 1972. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Working Papers 87, Queen's University, Department of Economics.
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  24. Echenique, Federico, 2007. "Finding all equilibria in games of strategic complements," Journal of Economic Theory, Elsevier, vol. 135(1), pages 514-532, July.
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  26. Neven, Damien J., 1987. "Endogenous sequential entry in a spatial model," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 419-434.
  27. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
  28. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  29. Aguirregabiria, Victor, 2012. "A method for implementing counterfactual experiments in models with multiple equilibria," Economics Letters, Elsevier, vol. 114(2), pages 190-194.
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Cited by:
  1. Joao Macieira, 2010. "Oblivious Equilibrium in Dynamic Discrete Games," 2010 Meeting Papers 680, Society for Economic Dynamics.

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