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Detecting Collusion in Spatially Differentiated Markets

Author

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  • Matthias Firgo

    (WIFO)

  • Agnes Kügler

Abstract

The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behaviour among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria. We show that prices of ski resorts forming alliances are higher and increase with the size and towards the spatial center of an alliance. Strategic interaction in pricing is higher within than outside alliances. All results are in line with the findings of theoretical models on collusion in horizontally differentiated markets.

Suggested Citation

  • Matthias Firgo & Agnes Kügler, 2014. "Detecting Collusion in Spatially Differentiated Markets," WIFO Working Papers 479, WIFO.
  • Handle: RePEc:wfo:wpaper:y:2014:i:479
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    File URL: https://www.wifo.ac.at/wwa/pubid/47491
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    Cited by:

    1. Matthias Firgo & Agnes Kügler, 2014. "Ski Networks and their Effects on Pricing in Austrian Skiing Regions," WIFO Monatsberichte (monthly reports), WIFO, vol. 87(12), pages 851-862, December.
    2. repec:eee:touman:v:60:y:2017:i:c:p:92-104 is not listed on IDEAS

    More about this item

    Keywords

    tacit collusion; strategic alliances; spatial differentiation; ski lift ticket prices;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • 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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