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Competition, collusion and spatial sales patterns: Theory and evidence

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  • Hunold, Matthias
  • Hüschelrath, Kai
  • Laitenberger, Ulrich
  • Muthers, Johannes

Abstract

We study competition in markets with significant transport costs and capacity constraints. We compare the cases of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers that are closer to plants of competitors. By means of a rich micro-level data set of the cement industry in Germany, we provide empirical evidence in support of this result. Controlling for other potentially confounding factors, such as the number of production plants and demand, we find that the transport distances between suppliers and customers were on average significantly lower in cartel years than in non-cartel years.

Suggested Citation

  • Hunold, Matthias & Hüschelrath, Kai & Laitenberger, Ulrich & Muthers, Johannes, 2017. "Competition, collusion and spatial sales patterns: Theory and evidence," ZEW Discussion Papers 17-035, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:17035
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    References listed on IDEAS

    as
    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Kai Hüschelrath & Tobias Veith, 2014. "Cartel Detection in Procurement Markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(6), pages 404-422, September.
    3. Hector Perez-Saiz, 2015. "Building new plants or entering by acquisition? Firm heterogeneity and entry barriers in the U.S. cement industry," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 625-649, September.
    4. Robert Somogyi, 2013. "Bertrand-Edgeworth competition with substantial product differentiation," IEHAS Discussion Papers 1332, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    5. Pio Baake & Jörg Oechssler & Christoph Schenk, 1999. "Explaining cross-supplies," Journal of Economics, Springer, vol. 70(1), pages 37-60, February.
    6. repec:ags:pdcbeh:204188 is not listed on IDEAS
    7. Canoy, Marcel, 1996. "Product Differentiation in a Bertrand-Edgeworth Duopoly," Journal of Economic Theory, Elsevier, vol. 70(1), pages 158-179, July.
    8. Nathan H. Miller & Matthew Osborne, 2014. "Spatial differentiation and price discrimination in the cement industry: evidence from a structural model," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 221-247, June.
    9. Alberto Salvo, 2010. "Inferring market power under the threat of entry: the case of the Brazilian cement industry," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 326-350.
    10. Kai Hüschelrath & Tobias Veith, 2016. "Cartelization, Cartel Breakdown, and Price Behavior: Evidence from the German Cement Industry," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 81-100, March.
    11. Sinitsyn, Maxim, 2009. "Price dispersion in duopolies with heterogeneous consumers," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 197-205, March.
    12. Ulrich Blum, 2007. "The East German Cement Cartel: Cartel Efficiency and Policy After Economic Transformation," Eastern European Economics, Taylor & Francis Journals, vol. 45(6), pages 5-28, November.
    13. Hunold, Matthias & Muthers, Johannes, 2018. "Spatial Competition with Capacity Constraints and Subcontracting," DICE Discussion Papers 254, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    14. Kai Hüschelrath & Tobias Veith, 2016. "Cartelization, Cartel Breakdown, and Price Behavior: Evidence from the German Cement Industry," Journal of Industry, Competition and Trade, Springer, vol. 16(1), pages 81-100, March.
    15. Harrington, Joseph E. & Hüschelrath, Kai & Laitenberger, Ulrich & Smuda, Florian, 2015. "The discontent cartel member and cartel collapse: The case of the German cement cartel," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 106-119.
    16. Joseph E. Harrington & Kai Hüschelrath & Ulrich Laitenberger, 2018. "Rent sharing to control noncartel supply in the German cement market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 149-166, March.
    17. Alberto Salvo, 2010. "Trade flows in a spatial oligopoly: gravity fits well, but what does it explain?," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 63-96, February.
    18. Hüschelrath, Kai & Müller, Kathrin & Veith, Tobias, 2012. "Estimating damages from price-fixing: The value of transaction data," ZEW Discussion Papers 12-036, ZEW - Leibniz Centre for European Economic Research.
    19. Hans W. Friederiszick & Lars-Hendrik Röller, 2010. "Quantification of harm in damages actions for antitrust infringements: Insights from German cartel cases," ESMT Research Working Papers ESMT-10-001, ESMT European School of Management and Technology.
    20. Maxim Sinitsyn, 2008. "Technical Note--Price Promotions in Asymmetric Duopolies with Heterogeneous Consumers," Management Science, INFORMS, vol. 54(12), pages 2081-2087, December.
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    Cited by:

    1. Hunold, Matthias & Muthers, Johannes, 2018. "Spatial Competition with Capacity Constraints and Subcontracting," DICE Discussion Papers 254, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    Keywords

    capacity constraints; cartel; cement; spatial competition; transport costs;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • 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
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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