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Consumer and competitor reactions: Evidence from a field experiment

Author

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  • Barron, John M.
  • Umbeck, John R.
  • Waddell, Glen R.

Abstract

In response to a price change by a single seller, it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers. Using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more-responsive demand. This finding is fundamental to a predicted inverse relationship between market prices and the number of competitors. We also examine the reaction of rival stations to exogenous price changes, and find that the magnitude of a competitor's response is inversely related to the density of stations in the market.

Suggested Citation

  • Barron, John M. & Umbeck, John R. & Waddell, Glen R., 2008. "Consumer and competitor reactions: Evidence from a field experiment," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 517-531, March.
  • Handle: RePEc:eee:indorg:v:26:y:2008:i:2:p:517-531
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    Cited by:

    1. Klaus Desmet & Stephen Parente, 2012. "The evolution of markets and the revolution of industry: a unified theory of growth," Journal of Economic Growth, Springer, vol. 17(3), pages 205-234, September.
    2. Silvia Louis & Taylor Christopher T., 2016. "Gasoline and Diesel Tax Incidence: The 2003 Washington State Nickel Funding Package," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(3), pages 1539-1562, September.
    3. Desmet, Klaus & Parente, Stephen, 2006. "Bigger is Better: Market Size, Demand Elasticity and Resistance to Technology Adoption," CEPR Discussion Papers 5825, C.E.P.R. Discussion Papers.
    4. repec:dgr:rugsom:14027-eef is not listed on IDEAS
    5. Firgo, Matthias & Pennerstorfer, Dieter & Weiss, Christoph R., 2016. "Network centrality and market prices: Empirical evidence," Economics Letters, Elsevier, vol. 139(C), pages 79-83.
    6. Dinopoulos, Elias & Syropoulos, Constantinos & Xu, Bin & Yotov, Yoto V., 2011. "Intraindustry trade and the skill premium: Theory and evidence," Journal of International Economics, Elsevier, vol. 84(1), pages 15-25, May.
    7. Desmet, Klaus & Parente, Stephen, 2009. "The Evolution of Markets and the Revolution of Industry: A Quantitative Model of England's Development, 1300-2000," CEPR Discussion Papers 7290, C.E.P.R. Discussion Papers.
    8. Amy Schultheis & Daniel N.K. Johnson & Kristina M. Lybecker & Devin Nadar, 2016. "Buy Here, or Keep Driving? The Effect of Geographic Market Density on Retail Gas Prices," Journal of Business, LAR Center Press, vol. 1(1), pages 12-20, March.
    9. Firgo, Matthias & Pennerstorfer, Dieter & Weiss, Christoph R., 2015. "Centrality and pricing in spatially differentiated markets: The case of gasoline," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 81-90.
    10. Basant, Rakesh & Mishra, Pulak, 2013. "Concentration and Other Determinants of Innovative Efforts in Indian Manufacturing Sector: A Dynamic Panel Data Analysis," IIMA Working Papers WP2013-02-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    11. Jeremy A. Verlinda, 2007. "Price-Response Asymmetry and Spatial Differentiation in Local Retail Gasoline Markets," EAG Discussions Papers 200704, Department of Justice, Antitrust Division.
    12. Jeremy A. Verlinda, 2008. "DO ROCKETS RISE FASTER AND FEATHERS FALL SLOWER IN AN ATMOSPHERE OF LOCAL MARKET POWER? EVIDENCE FROM THE RETAIL GASOLINE MARKET -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 581-612, September.
    13. Arteaga, Julio Cesar & Flores, Daniel, 2010. "Regulation, competition and fraud: evidence from retail gas stations in Mexico," MPRA Paper 34187, University Library of Munich, Germany.
    14. Noel, Michael D., 2015. "Do Edgeworth price cycles lead to higher or lower prices?," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 81-93.

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