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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.

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File URL: http://www.tandfonline.com/10.1080/13571510600961270
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Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 13 (2006)
Issue (Month): 3 ()
Pages: 351-372

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Handle: RePEc:taf:ijecbs:v:13:y:2006:i:3:p:351-372
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  1. 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 S29-59, Supplemen.
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  5. Andrew Eckert & Douglas West, 2004. "Rationalization of Retail Gasoline Station Networks in Canada," Review of Industrial Organization, Springer, vol. 26(1), pages 1-25, October.
  6. 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.
  7. 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.
  8. 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.
  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 245-73, April.
  10. 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.
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