Prices, spatial competition, and heterogenous producers
Subtitle: an empirical test
By: Chad Syverson
Contributors: Syverson, Chad; National Bureau of Economic Research
Series: NBER working paper series -- working paper 12231; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 12231.
Publisher: National Bureau of Economic Research
Published: 2006
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] :
Description: "In markets where spatial competition is important, many models predict that average prices are lower in denser markets (i.e., those with more producers per unit area).  Homogeneous-producer models attribute this effect solely to lower optimal markups.  However, when producers instead differ in their production costs, a second mechanism also acts to lower equilibrium prices: competition-driven selection on costs.  Consumers' greater substitution possibilities in denser markets make it more difficult for high-cost firms to profitably operate, truncating the equilibrium cost (and price) distributions from above.  This selection process can be empirically distinguished from the homogenous-producer case because it implies that not only do average prices fall as density rises, but that upper-bound prices and price dispersion should also decline as well.  I find empirical support for this process using a rich set of price data from U.S.  readymixed concrete plants.  Features of the industry offer an arguably exogenous source of producer density variation with which to identify these effects.  I also show that the findings do not simply result from lower factor prices in dense markets, but rather because dense-market producers have low costs because they are more efficient"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 5/25/2006.

Includes bibliographical references.

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