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Competition in Interrelated Markets: An Empirical Study

Author

Listed:
  • Asplund, Marcus

    (Department of Economics)

  • Sandin, Rickard

    (Department of Economics)

Abstract

This paper studies competition in small, concentrated and inter- related markets. Our data set consists of price information fron 543 driving schools in 250 local markets in sweden, which gives a large sample to test hypotheses on how market structure influences competition. The results show that if prices in nearby markets are low, and the distances to them are short, it reduces prices, as suggested in models of spatial competition. Moreover, we find that prices in closely located markets are interdependent. It is also shown that prices are increasing in firm concentration within a market, as most theories of oligopoly predict.

Suggested Citation

  • Asplund, Marcus & Sandin, Rickard, 1995. "Competition in Interrelated Markets: An Empirical Study," SSE/EFI Working Paper Series in Economics and Finance 84, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0084
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    References listed on IDEAS

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    1. Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768 Elsevier.
    2. Cotterill, Ronald W, 1986. "Market Power in the Retail Food Industry: Evidence from Vermont," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 379-386, August.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    4. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
    5. Asplund, Marcus & Sandin, Rickard, 1999. "Competition in interrelated markets: An empirical study," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 353-369, April.
    6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    7. 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.
    8. Claycombe, Richard J. & Mahan, Tamara E., 1993. "Spatial aspects of retail market structure beef pricing revisited," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 283-291, June.
    9. Slade, Margaret E, 1986. "Exogeneity Tests of Market Boundaries Applied to Petroleum Products," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 291-303, March.
    10. Claycombe, Richard J., 1991. "Spatial retail markets," International Journal of Industrial Organization, Elsevier, vol. 9(2), pages 303-313, June.
    11. Startz, Richard, 1983. "Computation of linear hypothesis tests for two-stage least squares," Economics Letters, Elsevier, vol. 11(1-2), pages 129-131.
    12. Marvel, Howard P, 1978. "Competition and Price Levels in the Retail Gasoline Market," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 252-258, May.
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    Citations

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    Cited by:

    1. Hackl, Franz & Kummer, Michael E. & Winter-Ebmer, Rudolf & Zulehner, Christine, 2014. "Market structure and market performance in E-commerce," European Economic Review, Elsevier, vol. 68(C), pages 199-218.
    2. Asplund, Marcus & Sandin, Rickard, 1999. "Competition in interrelated markets: An empirical study," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 353-369, April.
    3. Christos Genakos & Tommaso M. Valletti & Frank Verboven, 2017. "Evaluating Market Consolidation in Mobile Communications," CESifo Working Paper Series 6509, CESifo Group Munich.
    4. Gerhard Clemenz & Klaus Gugler, 2006. "Locational choice and price competition: some empirical results for the austrian retail gasoline market," Empirical Economics, Springer, vol. 31(2), pages 291-312, June.
    5. Andersson, Hans & Hoffmann, Ruben, 2008. "Farm Tourism and Spatial Competition," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44417, European Association of Agricultural Economists.
    6. Richard Nahuis & Joëlle Noailly, 2005. "Competition and quality in the notary profession," CPB Document 94, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Asplund, Marcus, 1998. "On the size distributions of firms and markets," SSE/EFI Working Paper Series in Economics and Finance 288, Stockholm School of Economics.
    8. Vishal Singh & Ting Zhu, 2008. "Pricing and Market Concentration in Oligopoly Markets," Marketing Science, INFORMS, vol. 27(6), pages 1020-1035, 11-12.
    9. Friberg, Richard & Ganslandt, Mattias & Sandström, Mikael, 2001. "Pricing Strategies in E-Commerce: Bricks vs. Clicks," Working Paper Series 559, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Spatial competition; interrelated markets; oligopoly; driving schools;

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • 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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