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Exit and Upgrading in Response to Entry: The Case of Gasoline Retailing


  • Andrew Eckert
  • Douglas West


Spatial competition models have established the importance of localized competition in determining competitive outcomes. However, few empirical studies attempt to determine to what extent actual local market conditions affect strategic decisions. This paper uses data provided by the acquisition of the Vancouver area Super-Save chain of retail gasoline stations by ARCO to study the role of geographic space in competition, and the spatial response of the major competitors in the market to entry. The possibility of both accommodating and aggressive capacity responses by the major incumbent firms to entry are considered. While the empirical results show that proximity to ARCO increased the probability that a station shuts down, proximity to ARCO can explain only a limited amount of shutdown after ARCO's entry. There is no evidence that incumbent firms used station locations and capacity changes to respond aggressively to ARCO's entry with a spatial predation strategy.

Suggested Citation

  • Andrew Eckert & Douglas West, 2006. "Exit and Upgrading in Response to Entry: The Case of Gasoline Retailing," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(3), pages 351-372.
  • Handle: RePEc:taf:ijecbs:v:13:y:2006:i:3:p:351-372 DOI: 10.1080/13571510600961270

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    References listed on IDEAS

    1. Andrew Eckert & Douglas West, 2004. "Rationalization of Retail Gasoline Station Networks in Canada," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(1), pages 1-25, October.
    2. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    3. Janet S. Netz & Beck A. Taylor, 2002. "Maximum Or Minimum Differentiation? Location Patterns Of Retail Outlets," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 162-175, February.
    4. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
    5. Von Hohenbalken, Balder & West, Douglas S., 1984. "Predation among supermarkets: An algorithmic locational analysis," Journal of Urban Economics, Elsevier, vol. 15(2), pages 244-257, March.
    6. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 551-592, April.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    8. Slade, Margaret E, 1998. "Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Markets," Journal of Law, Economics, and Organization, Oxford University Press, vol. 14(1), pages 84-113, April.
    9. Eckert, Andrew & West, Douglas S, 2004. "Retail Gasoline Price Cycles across Spatially Dispersed Gasoline Stations," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 245-273, April.
    10. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
    11. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 29-59, Supplemen.
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    Cited by:

    1. Johannes Sauer & Matthew Gorton & John White, 2012. "Marketing, cooperatives and price heterogeneity: evidence from the CIS dairy sector," Agricultural Economics, International Association of Agricultural Economists, vol. 43(2), pages 165-177, March.
    2. Nikolic, Adriana & Weiss, Christoph, 2014. "Spatial interactions in location decisions: Empirical evidence from a Bayesian spatial probit model," Department of Economics Working Paper Series 4245, WU Vienna University of Economics and Business.
    3. Andrew Eckert & Heather Eckert, 2014. "Regional Patterns in Gasoline Station Rationalization in Canada," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 99-122, March.


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