Spatial Price Competition: A Semiparametric Approach

We investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent. We propose an instrumental variables series estimator for the matrix of cross price response coefficients, demonstrate that our estimator is consistent,...

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Bibliographic Details
Published in:Econometrica 2002-05, Vol.70 (3), p.1111-1153
Main Authors: Pinkse, Joris, Slade, Margaret E., Brett, Craig
Format: Article
Language:English
Subjects:
Applications
Applied sciences
Brands
Competition
Consistent estimators
Consumers
Consumption
differentiated products
Econometrics
Economic competition
Economic models
Estimation
Estimation methods
Estimators
Euclidean space
Exact sciences and technology
Gasoline
instrumental variables
Instrumental variables estimation
Insurance, economics, finance
Market competition
Market prices
Mathematics
Monopolies
Monopolistic competition
nonparametric estimation
Nonparametric inference
Operational research and scientific management
Operational research. Management science
Parametric inference
Petrol
Petroleum marketers
price competition
Price elasticity
Probability and statistics
Product differentiation
Profits
Sciences and techniques of general use
series estimators
Spatial models
Statistical analysis
Statistics
Studies
Variables
wholesale gasoline
Wholesale prices
Wholesale trade
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Summary:We investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent. We propose an instrumental variables series estimator for the matrix of cross price response coefficients, demonstrate that our estimator is consistent, and derive its asymptotic distribution. Our semiparametric approach allows us to discriminate among models of global competition, in which all products compete with all others, and local competition, in which products compete only with their neighbors. We apply our semiparametric estimator to data from U.S. wholesale gasoline markets and find that, in this market, competition is highly localized.
ISSN:0012-9682
1468-0262
DOI:10.1111/1468-0262.00320