RT Dissertation/Thesis
T1 Essays on strategic location choices and pricing strategies in oligopolistic markets
A1 Erdmann, Anett
AB The three chapters of this dissertation contribute to the understanding of strategic firm behavior in oligopolistic markets. In particular, I link spatial market featuresto standard competition analysis, which enables new perspectives to explain marketoutcomes in geographically defined markets and provide applications to the groceryretail industry.Chapter 1 studies the importance of returns to product differentiation and distributioneconomies for a firm’s optimal location choice. Inspired by the empirical workof Holmes (2011), I introduce endogenous distribution costs in the model of Hotelling(1929). The proposed model shows an interesting trade-o  between demand and costconsiderations when a firm plays a hybrid location strategy. Given the location oflocal distribution centers and agents’ displacement cost parameters, it is shown that,under certain conditions, the optimal locations of the firms are in the interior of theHotelling line rather than at the edges of the line. The supply-cost effect which drivesthis result diminishes with the distance of the distribution center from the market sothat the scale of the distribution area also becomes determinant for an optimal locationstrategy.Chapter 2 investigates empirically the effect of anticipated price competition and distributioncosts in firms’ location choices within an oligopolistic market. I set up astatic location-price game of incomplete information in which retailers choose theirlocations based on (firm-)location-specific characteristics, the expected market powerand the expected degree of price competition. In particular, I tie the firms’ strategiclocation incentives to the population distribution using the concept of captive consumers.This approach is in line with theoretical spatial price competition modelsand does not require price or quantity data. I address the computational difficulties ofthe estimation using mathematical programming with equilibrium constraints. Appliedto grocery stores operated by the two main conventional supermarket chains inthe US, the model confirms the existence of benefits of spatial differentiation for thefirms’ profits and provides evidence that the firms anticipate price competition anddistribution costs in their site selections.Chapter 3 studies empirically the volatility of retail price indexes at the store level as a result of changes in the local market structure within an urban market. Usinga reduced-form pricing equation, I decompose the potential competition effect inthe effect of incumbent retailers and the effect of new grocery store openings. Consideringthe Spanish supermarket industry, which is strongly regulated, I make use of panel data and use a first-difference approach to estimate a distributed-lag model.The results suggest an instantaneous price reaction to entry which is smaller than thelong-term competition effect. Possible explanations are constrained price- exibilityfor incumbent firms in the short run or difficulties of the entrant in establishing themselvesas coequal rivals. I find that this gradual price reaction is especially pronouncedfor supermarkets positioned in the middle price-segment, and the strongest price reactionhas been found for high-price retailers.
YR 2015
FD 2015-06
LK https://hdl.handle.net/10016/21500
UL https://hdl.handle.net/10016/21500
LA eng
NO I gratefully acknowledge that this research was funded by theUniversity Carlos III de Madrid and the grant ECO2012-31358 from the Spanish Ministryof Education.
DS e-Archivo
RD 20 may. 2024