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Dynamic Spatial Competition Between Multi-Store Firms

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  • Victor Aguirregabiria
  • Gustavo Vicentini

Abstract

We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store firms. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We provide an algorithm to compute Markov Perfect Equilibria (MPE) in our model. We conduct several numerical experiments to study how the propensity of multi-store retailers to spatial preemptive behavior depends on the magnitude of entry costs, exit value and transportation costs.

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  • Victor Aguirregabiria & Gustavo Vicentini, 2006. "Dynamic Spatial Competition Between Multi-Store Firms," Working Papers tecipa-253, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-253
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    Cited by:

    1. Christopher Heard & Flavio M Menezes & Alicia N Rambaldi, 2018. "The dynamics of bank location decisions in Australia," Australian Journal of Management, Australian School of Business, vol. 43(2), pages 241-262, May.
    2. Carlos A. Manzanares & Ying Jiang & Patrick Bajari, 2015. "Improving Policy Functions in High-Dimensional Dynamic Games," NBER Working Papers 21124, National Bureau of Economic Research, Inc.
    3. Stefano Colombo & Zemin Hou, 2019. "On spatial competition with quadratic transport costs and one online firm," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(1), pages 241-247, August.
    4. Bunyada Laoprapassorn, 2022. "Entry and Spatial Competition of Intermediaries: Evidence from Thailand's Rice Market," PIER Discussion Papers 170, Puey Ungphakorn Institute for Economic Research.
    5. Rebolledo, Mayra, 2020. "M&A, uncertainty, and bargaining power: Evidence from the German retail sector," CAWM Discussion Papers 116, University of Münster, Münster Center for Economic Policy (MEP).
    6. Stefano Colombo & Zemin Hou, 2021. "Location-Price Equilibria when Traditional Retailers Compete Against an Online Retailer," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(3), pages 483-502, November.
    7. Karamychev, Vladimir & van Reeven, Peran, 2009. "Retail sprawl and multi-store firms: An analysis of location choice by retail chains," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 277-286, May.
    8. Joao Macieira, 2010. "Oblivious Equilibrium in Dynamic Discrete Games," 2010 Meeting Papers 680, Society for Economic Dynamics.
    9. Victor Aguirregabiria & Junichi Suzuki, 2015. "Empirical Games of Market Entry and Spatial Competition in Retail Industries," Working Papers tecipa-534, University of Toronto, Department of Economics.
    10. Sumon Datta & K. Sudhir, 2023. "The Agglomeration-Differentiation Tradeoff in Spatial Location Choice," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 10(1), pages 1-25, December.

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    More about this item

    Keywords

    Spatial competition; Market dynamics; Sunk costs; Spatial preemptive behavior.;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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