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Spatial Price Competition: A Semiparametric Approach

  • Joris Pinkse

    ()

    (Dept. of Economics, The University of British Columbia, Canada)

  • Margaret E. Slade

    ()

    (Dept. of Economics, The University of British Columbia, Canada)

  • Craig Brett

    ()

    (Dept. of Economics, Royal Holloway College, University of London, United Kingdom)

We investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent. We propose an instrumental variables series estimator for the matrix of cross price response coefficients, demonstrate that our estimator is consistent, and derive its asymptotic distribution. Our semiparametric approach allows us to discriminate among models of global competition, in which all products compete with all others, and local competition, in which products compete only with their neighbors. We apply our semiparametric estimator to data from U.S. wholesale gasoline markets and find that, in this market, competition is highly localized. Copyright The Econometric Society 2002.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 3 (May)
Pages: 1111-1153

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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:3:p:1111-1153
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