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Spatial differentiation and price discrimination in the cement industry: evidence from a structural model

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  • Nathan H. Miller
  • Matthew Osborne

Abstract

type="main"> We estimate a structural model of the cement industry that incorporates spatial differentiation and price discrimination, focusing on the US Southwest over 1983–2003. We leverage the structure of the model to obtain consistent estimates of the underlying parameters using data on market outcomes that are substantially aggregated. Our results indicate that transportation costs around $0.46 per tonne-mile rationalize the data. This friction enables relatively isolated plants to obtain higher prices from nearby customers. We further find that disallowing price discrimination would create $30 million in consumer surplus annually and show how the model can identify suitable divestitures in merger analysis.

Suggested Citation

  • Nathan H. Miller & Matthew Osborne, 2014. "Spatial differentiation and price discrimination in the cement industry: evidence from a structural model," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 221-247, June.
  • Handle: RePEc:bla:randje:v:45:y:2014:i:2:p:221-247
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12049
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:revind:v:52:y:2018:i:3:d:10.1007_s11151-017-9607-7 is not listed on IDEAS
    2. Hector Perez-Saiz, 2015. "Building new plants or entering by acquisition? Firm heterogeneity and entry barriers in the U.S. cement industry," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 625-649, September.
    3. Hunold, Matthias & Hüschelrath, Kai & Laitenberger, Ulrich & Muthers, Johannes, 2017. "Competition, collusion and spatial sales patterns: Theory and evidence," ZEW Discussion Papers 17-035, ZEW - Leibniz Centre for European Economic Research.
    4. Cuiabano, Simone, 2017. "Competition Policy Evaluation through Damage Estimation in Fuel Retail Cartel," TSE Working Papers 17-847, Toulouse School of Economics (TSE).
    5. Victor Aguirregabiria & Junichi Suzuki, 2015. "Empirical Games of Market Entry and Spatial Competition in Retail Industries," Working Papers tecipa-534, University of Toronto, Department of Economics.
    6. repec:kap:jincot:v:18:y:2018:i:2:d:10.1007_s10842-017-0263-2 is not listed on IDEAS
    7. Kai Hüschelrath & Tobias Veith, 2016. "Cartelization, Cartel Breakdown, and Price Behavior: Evidence from the German Cement Industry," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 81-100, March.
    8. Harrington, Joseph E. & Hüschelrath, Kai & Laitenberger, Ulrich & Smuda, Florian, 2015. "The discontent cartel member and cartel collapse: The case of the German cement cartel," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 106-119.
    9. Jung, Jinho & Sesmero, Juan Pablo & Balagtas, Joseph V., 2017. "Market Power in Feedstock Procurement and Economic Effects of Corn Ethanol," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258544, Agricultural and Applied Economics Association.
    10. Moul, Charles C., 2015. "Estimating demand for spatially differentiated firms with unobserved quantities and limited price data," Economics Letters, Elsevier, vol. 131(C), pages 50-53.

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