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PRICES, SPATIAL COMPETITION AND HETEROGENEOUS PRODUCERS: AN EMPIRICAL TEST -super-

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  • CHAD SYVERSON

Abstract

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..

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  • Chad Syverson, 2007. "PRICES, SPATIAL COMPETITION AND HETEROGENEOUS PRODUCERS: AN EMPIRICAL TEST -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 197-222, June.
  • Handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:197-222
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    Cited by:

    1. Jacint Balaguer Coll & José C. Pernías, 2010. "Spatial density, average prices and price dispersion. Evidence from the Spanish hotel industry," Working Papers. Serie EC 2010-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Gabriel Natividad, 2016. "Quotas, Productivity, and Prices: The Case of Anchovy Fishing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(1), pages 220-257, March.
    3. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2014. "Trade, Wages, And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 1305-1348, November.
    4. Forslid, Rikard & Okubo, Toshihiro, 2014. "Spatial sorting with heterogeneous firms and heterogeneous sectors," Regional Science and Urban Economics, Elsevier, vol. 46(C), pages 42-56.
    5. Ghosh, Arghya & Kato, Takao & Morita, Hodaka, 2017. "Incremental innovation and competitive pressure in the presence of discrete innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 1-14.
    6. Forslid, Rikard & Okubo, Toshihiro, 2012. "On the development strategy of countries of intermediate size—An analysis of heterogeneous firms in a multi-region framework," European Economic Review, Elsevier, vol. 56(4), pages 747-756.
    7. Behrens, Kristian & Robert-Nicoud, Frédéric, 2015. "Agglomeration Theory with Heterogeneous Agents," Handbook of Regional and Urban Economics, Elsevier.
    8. Jen Baggs & Eugene Beaulieu & Loretta Fung & Beverly Lapham, 2016. "Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 635-666, August.
    9. Francesco Di Comite & Jacques-François Thisse & Hylke Vandenbussche, 2011. "Verti-zontal differentiation in monopolistic competition," Working Paper Research 216, National Bank of Belgium.
    10. Spyridon Stavropoulos & Dimitris Skuras, 2016. "Firm Profitability and Agglomeration Economies: An Elusive Relationship," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 107(1), pages 66-80, February.
    11. Forslid, Rikard & Okubo, Toshihiro, 2017. "Early agglomeration or late agglomeration?: Two phases of development with spatial sorting," CEPR Discussion Papers 11977, C.E.P.R. Discussion Papers.
    12. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 307-339.
    13. Chad Syverson, 2008. "Markets: Ready-Mixed Concrete," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 217-234, Winter.
    14. Brekke, Kurt R. & Garcia Pires, Armando J. & Schindler, Dirk & Schjelderup, Guttorm, 2017. "Capital taxation and imperfect competition: ACE vs. CBIT," Journal of Public Economics, Elsevier, vol. 147(C), pages 1-15.
    15. Okubo, Toshihiro, 2009. "Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 530-541, September.
    16. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques-François Thisse, 2011. "Monopolistic competition in general equilibrium: Beyond the CES," Working Papers halshs-00566431, HAL.
    17. Okubo, Toshihiro & Picard, Pierre M. & Thisse, Jacques-François, 2010. "The spatial selection of heterogeneous firms," Journal of International Economics, Elsevier, vol. 82(2), pages 230-237, November.
    18. Steven Davis & Cheryl Grim & John Haltiwanger, 2008. "Productivity Dispersion and Input Prices: The Case of Electricity," Working Papers 08-33, Center for Economic Studies, U.S. Census Bureau.
    19. Silva, Mario, 2017. "New monetarism with endogenous product variety and monopolistic competition," Journal of Economic Dynamics and Control, Elsevier, vol. 75(C), pages 158-181.
    20. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    21. Sabien Dobbelaere & Mark Vancauteren, 2014. "Market imperfections, skills and total factor productivity : Firm-level evidence on Belgium and the Netherlands," Working Paper Research 267, National Bank of Belgium.
    22. Ufuk Akcigit, 2009. "Firm Size, Innovation Dynamics and Growth," 2009 Meeting Papers 1267, Society for Economic Dynamics.
    23. Bigsten, Arne & Gebreeyesus, Mulu & Siba, Eyerusalem & Soderbom, Måns, 2012. "Enterprise Agglomeration, Output Prices, and Physical Productivity: Firm-Level Evidence from Ethiopia," WIDER Working Paper Series 085, World Institute for Development Economic Research (UNU-WIDER).
    24. Alexander Osharin & Valery Verbus, 2016. "Heterogeneous consumers and trade patterns in a monopolistically competitive setting," HSE Working papers WP BRP 131/EC/2016, National Research University Higher School of Economics.

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