PRICES, SPATIAL COMPETITION AND HETEROGENEOUS PRODUCERS: AN EMPIRICAL TEST -super-
Homogeneous-producer models attribute lower prices in denser markets solely to lower optimal markups. I argue here that when producers have different production costs, competition-driven selection on costs also reduces prices. This selection mechanism can be distinguished from the homogenous-producer case because it implies that higher density leads not only to lower average prices, but to declines in upper-bound prices and price dispersion as well. I find empirical support for this mechanism in the prices of ready-mixed concrete plants. I also show these findings do not simply reflect lower factor prices in dense markets, but result instead because dense-market producers are more efficient. Copyright 2007 Blackwell Publishing Ltd..
Volume (Year): 55 (2007)
Issue (Month): 2 (06)
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