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Making friends with your neighbors? Agglomeration and tacit collusion in the lodging industry

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  • Li Gan
  • Manuel A. Hernandez

Abstract

Agglomeration is a location pattern frequently observed in service industries such as hotels. This paper empirically examines if agglomeration facilitates tacit collusion in the lodging industry using a quarterly dataset of hotels that operated in rural areas across Texas between 2003 and 2005. We jointly model a price and occupancy rate equation under a switching regression model to endogenously identify a collusive and non-collusive regime. The estimation results indicate that clustered hotels have a higher probability of being in the potential collusive regime than isolated properties in the same town. The identification of a collusive regime is also consistent with other factors considered to affect the sustainability of collusion like cluster size, seasonality and firm size, and the results are robust to alternative cluster definitions.

Suggested Citation

  • Li Gan & Manuel A. Hernandez, 2011. "Making friends with your neighbors? Agglomeration and tacit collusion in the lodging industry," NBER Working Papers 16739, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16739 Note: IO LE
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    References listed on IDEAS

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    1. John Connor, 2005. "Collusion and price dispersion," Applied Economics Letters, Taylor & Francis Journals, vol. 12(6), pages 335-338.
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    7. Irmen, Andreas & Thisse, Jacques-Francois, 1998. "Competition in Multi-characteristics Spaces: Hotelling Was Almost Right," Journal of Economic Theory, Elsevier, vol. 78(1), pages 76-102, January.
    8. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May.
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    12. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
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    Citations

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    Cited by:

    1. Melis, Giuseppe & Piga, Claudio A, 2016. "Are all online hotel prices created dynamic? An empirical assessment," MPRA Paper 75896, University Library of Munich, Germany.
    2. Martin Falk & Eva Hagsten, 2014. "Output growth and prices of establishments in the Swedish lodging industry," ERSA conference papers ersa14p360, European Regional Science Association.
    3. Xi Wu & Li Gan, 2013. "Multiple Dimensions of Private Information in Life Insurance Markets," NBER Working Papers 19629, National Bureau of Economic Research, Inc.
    4. Diego Escobari & Alejandro Serrano, 2016. "Reducing asymmetric information in venture capital backed IPOs," Managerial Finance, Emerald Group Publishing, vol. 42(6), pages 553-568, June.
    5. Li Gan & Manuel A. Hernandez & Yanyan Liu, 2013. "Group Lending with Heterogeneous Types," NBER Working Papers 18847, National Bureau of Economic Research, Inc.
    6. Wyatt J. Brooks & Joseph P. Kaboski & Yao Amber Li, 2016. "Growth Policy, Agglomeration, and (the Lack of) Competition," NBER Working Papers 22947, National Bureau of Economic Research, Inc.
    7. Roberto Gabriele & Enrico Tundis, 2015. "Contesto regionale, struttura economica e impatto delle politiche regionali: il caso degli alberghi in Trentino," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2015(3 Suppl.), pages 37-59.
    8. Roberto Gabriele, & Enrico Tundis, & Enrico Zaninotto, 2015. "Public Subsidies and Development of Hotel Industry: Evidence from a Place-based Policy," DEM Discussion Papers 2015/10, Department of Economics and Management.
    9. Cappenberg, Christina, 2013. "Staatliche Förderung regionaler Unternehmensnetzwerke: Legitimation nationaler Clusterpolitik," Arbeitspapiere 140, University of Münster, Institute for Cooperatives.

    More about this item

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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