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Local market definition in competition analysis: An application to entry models

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  • Pennerstorfer, Dieter
  • Yontcheva, Biliana

Abstract

This article presents a novel method of market delineation, which generates virtually isolated residential clusters using data on the spatial distribution of the population. The performance of this approach is evaluated by contrasting it with traditional delineation techniques based on municipal boundaries. The estimation of simple entry models for five industries shows that markets defined using micro-level residence information perform better in terms of reducing cross-border spatial spillovers and predicting the equilibrium number of firms on the market more accurately. Additionally, the estimated entry threshold ratios using this method successfully reflect our expectations based on models consisting of geographically isolated markets, as well as ex-ante knowledge about the investigated industries.

Suggested Citation

  • Pennerstorfer, Dieter & Yontcheva, Biliana, 2021. "Local market definition in competition analysis: An application to entry models," Economics Letters, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304389
    DOI: 10.1016/j.econlet.2020.109678
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    References listed on IDEAS

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    1. Catherine Schaumans & Frank Verboven, 2015. "Entry and Competition in Differentiated Products Markets," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 195-209, March.
    2. Martin Lábaj & Karol Morvay & Peter Silanič & Christoph Weiss & Biliana Yontcheva, 2018. "Market structure and competition in transition: results from a spatial analysis," Applied Economics, Taylor & Francis Journals, vol. 50(15), pages 1694-1715, March.
    3. Hernán D. Rozenfeld & Diego Rybski & Xavier Gabaix & Hernán A. Makse, 2011. "The Area and Population of Cities: New Insights from a Different Perspective on Cities," American Economic Review, American Economic Association, vol. 101(5), pages 2205-2225, August.
    4. de Bellefon, Marie-Pierre & Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Gorin, Clément, 2021. "Delineating urban areas using building density," Journal of Urban Economics, Elsevier, vol. 125(C).
    5. Fernandez Machado, Roxana, 2017. "Essays on empirical industrial organization : Entry and innovation," Other publications TiSEM 9c18f01c-055e-4b45-82aa-b, Tilburg University, School of Economics and Management.
    6. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
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    Cited by:

    1. Dmitrii Tereshchenko, 2022. "Competition among Russian Grocery Stores: Database on St. Petersburg, 2017–2021," HSE Working papers WP BRP 258/EC/2022, National Research University Higher School of Economics.

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    More about this item

    Keywords

    Market definition; Entry model; Spatial competition; Grid data;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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