Competition Among Spatially Differentiated Firms: An Empirical Model with an Application to Cement
The theoretical literature of industrial organization shows that the distances between consumers and firms have first-order implications for competitive outcomes whenever transportation costs are large. To assess these effects empirically, we develop a structural model of competition among spatially differentiated firms and introduce a GMM estimator that recovers the structural parameters with only regional-level data. We apply the model and estimator to the portland cement industry. The estimation fits, both in-sample and out-of-sample, demonstrate that the framework explains well the salient features of competition. We estimate transportation costs to be $0.30 per tonne-mile, given diesel prices at the 2000 level, and show that these costs constrain shipping distances and provide firms with localized market power. To demonstrate policy-relevance, we conduct counter-factual simulations that quantify competitive harm from a hypothetical merger. We are able to map the distribution of harm over geographic space and identify the divestiture that best mitigates harm.
Year of publication: |
2010
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Authors: | Miller, Nathan ; Osborne, Matthew |
Publisher: |
Washington, DC : U.S. Department of Justice, Antitrust Division, Economic Analysis Group (EAG) |
Saved in:
freely available
Series: | EAG Discussion Paper ; EAG 10-2 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 740028545 [GVK] hdl:10419/202388 [Handle] RePEc:doj:eagpap:201002 [RePEc] |
Source: |
Persistent link: https://www.econbiz.de/10012056322
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