Abstract
We propose a method to estimate static discrete games with weak assumptions on
the information available to players. We do not fully specify the information structure of the game but allow ...instead for all information structures consistent with players knowing their own payoffs. To make this approach tractable, we adopt as a solution concept Bayes correlated equilibrium (BCE). We characterize the sharp identified set under BCE and unrestricted equilibrium selection, and find that in simple games with limited variation in covariates identified sets are informative. In an application, we estimate a model of entry in the Italian supermarket industry and quantify the effect of large malls on local supermarkets. Estimates and predictions differ from those obtained under more restrictive assumptions.
We provide a practical method to estimate the payoff functions of players in complete information, static, discrete games. With respect to the empirical literature on entry games originated by ...Bresnahan and Reiss (1990) and Berry (1992), the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions. We allow the effects that the entry of each individual airline has on the profits of its competitors, its "competitive effects," to differ across airlines. The identified features of the model are sets of parameters (partial identification) such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data. We apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the U.S. airline industry. We find evidence of heterogeneity across airlines in their profit functions. The competitive effects of large airlines (American, Delta, United) are different from those of low cost carriers and Southwest. Also, the competitive effect of an airline is increasing in its airport presence, which is an important measure of observable heterogeneity in the airline industry. Then we develop a policy experiment to estimate the effect of repealing the Wright Amendment on competition in markets out of the Dallas airports. We find that repealing the Wright Amendment would increase the number of markets served out of Dallas Love.
This paper proposes a method that makes use of firms’ mass store closures to measure the store network effects of cannibalization and density economies. I calculate each store’s contribution to ...chain-level profits via one-store perturbations on the set of retained stores, and map these onto the firm’s closure choices. To separate the demand- and supply-side store network effects, I exploit the fact that the business-stealing effect intensifies with local network density, whereas the supply-side disadvantage prevails at sparse regions of the network. I apply the method to study the Starbucks chain. The average rate of cannibalization imposed by a neighbor outlet is 1.2% within one mile and 0.4% within one to three miles. For remote outlets, operation costs increase by 0.3% of revenues for each mile of distance from the network. Counterfactual analyses suggest that income level is a more important determinant of demand than population count at low levels of store penetration, whereas high-population regions can sustain denser store networks because of the softening of the cannibalization effect.
Data are available at
https://doi.org/10.1287/mksc.2017.1078
.
This paper uses a game of strategic interaction to simulate entry and location of fast charging stations for electric vehicles. It evaluates the equilibria obtained in terms of social welfare and ...firm spatial differentiation. Using Barcelona mobility survey, demographic data and the street graph we find that only at an electric vehicle penetration rate above 3% does a dense network of stations appear as the equilibrium outcome of a market with no fiscal transfers. We also find that price competition drives location differentiation measured not only in Euclidean distances but also in consumer travel distances.
•We simulate entry and location of fast charging stations for electric vehicle (EV).•Only at an EV penetration rate above 3% a network of stations is self-sufficient.•Price competition drives location differentiation.•Policy intervention does not improve welfare for every level of penetration of EV.
We study the relationship between market size and the number of firms in several healthcare professions in Slovakia to provide new evidence about their entry decisions and the toughness of ...competition on the market. The local market size that would support the entry of the first general practitioner was estimated at 1,400 inhabitants. This threshold equaled 1,700 inhabitants for the first pharmacy to enter and 2,300 for pediatricians. The population would have to more than double for the second professional to enter. To support the second firm, the population per firm in the market would have to increase by 30% for pharmacies, 25% for general practitioners, and almost 40% for pediatricians. However, after the entry of the second firm, the intensity of competition did not change, except for pediatricians. The results were robust to spatial interactions. Our estimates of spatial interactions showed negative (but decreasing) spatial spillover effects for pharmacies, general practitioners, and dentists between 1995 and 2010. In this period, competitive effects prevailed and outweighed demand spillovers. We document that the demand effect continued to grow after 2010 and in 2017 outweighed the competition effect for pharmacies. We show that an increase in the total number of pharmacies since 2010 led to diffusion into smaller markets and that the number of markets without a pharmacy decreased.
The present paper provides first empirical evidence on the relationship between market size and the number of firms in the healthcare industry for a transition economy. We estimate market-size ...thresholds required to support different numbers of suppliers (firms) for three occupations in the healthcare industry in a large number of distinct geographic markets in Slovakia, taking into account the spatial interaction between local markets. The empirical analysis is carried out for three time periods (1995, 2001 and 2010) which characterise different stages of the transition process. Our results suggest that the relationship between market size and the number of firms differs both across industries and across periods. In particular, we find that pharmacies, as the only completely liberalised market in our dataset, experience the largest change in competitive behaviour during the transition process. Furthermore, we find evidence for correlation in entry decisions across administrative borders, suggesting that future market analysis should aim to capture these regional effects.
Empirical entry models provide a fruitful framework to analyze many interesting questions in Industrial Organization. We show how empirical models of free entry can be extended to allow for various ...kinds of entry restrictions. We first consider a model of regulated entry and a model of monopoly or coordinated entry as alternatives to the free entry model. We then introduce a model that combines elements of both free and coordinated entry. This model describes how an upstream firm may find it optimal to restrict dowstream entry in some markets while allowing for free entry in other markets. The discussion shows how uncovering fixed costs from these alternative entry models is parallel to uncovering marginal costs from alternative oligopoly models of pricing or output behavior. To allow for clear comparisons, we focus on market-level entry models.
Although we have many tools to understand the effect of regulation on firm entry, we know little about the importance of actual regulation enforcement. For this purpose, this paper uses data from ...Spain's local television industry from 1995 through 2001, which provide a unique opportunity for examining how firms' profitability changes with the introduction of regulation and a posterior liberalization. During this period, the local television industry transitioned from a state of alegality (no regulation in place) to being highly regulated and finally to being informally deregulated. Using a firm entry model from Bresnahan and Reiss (1990, 1991a,b), we estimate local TV station entry thresholds by number of entrants across years. We find the entry threshold in 1998 increased relative to the thresholds in 1995 and 2001, suggesting that entry was less attractive during the period when the local TV industry was highly regulated. We decompose the entry thresholds into the fixed costs and variable profits, and find the fixed-cost ratios increase in 1998 and stay constant in 2001. Meanwhile, we find an increase in the variable-profit ratios in 2001. These findings suggest that the informal deregulation did not invalidate the regulation introduced in 1995 on the cost side. However, the deregulation seemed to have an impact on variable profits through how local TV stations competed.
•We examine firm entry changes due to law enforcement in Spanish TV industry.•We estimate population entry thresholds by number of entrants across years.•Fixed-cost ratios increased with regulation and stayed constant with deregulation.•We also find an increase in the variable-profit ratios with regulation.
O presente trabalho analisa a estratégia de entrada de firmas da indústria de fast-food brasileira em novos mercados. Investigamos quais os atributos de uma cidade que atrai firmas dessa indústria e ...como firmas de diferentes cadeias interagem nas suas decisões de entrada. Os resultados indicam que as firmas adotam uma estratégia do tipo me-too: uma vez que uma firma entra em um mercado inexplorado, as demais tendem a também entrar nesse mercado. A hipótese do artigo é que há uma incerteza quanto ao potencial de um mercado, e a entrada de uma firma sinaliza para as demais que esse potencial é elevado Os ganhos da descoberta e da entrada em um novo mercado com alto potencial dissipam-se rapidamente com a entrada das firmas seguidoras, concedendo uma vantagem temporária para a firma pioneira.
El presente trabajo analiza la estrategia de entrada de empresas de la industria de fast-food brasileña en nuevos mercados. Investigamos cuáles son los atributos de una ciudad que atrae empresas de esa industria y cómo empresas de diferentes cadenas interactúan en sus decisiones de entrada. Los resultados indican que las empresas adoptan una estrategia del tipo me-too: una vez que una empresa entra en un mercado inexplorado, las demás también tienden a entrar en ese mercado. La hipótesis del artículo es que hay una incertidumbre respecto al potencial de un mercado, y que la entrada de una empresa señaliza para las demás que ese potencial es elevado Las ventajas del hallazgo y de la entrada en un nuevo mercado con alto potencial se disipan rápidamente con la entrada de las empresas seguidoras, concediendo una ventaja temporaria a la empresa pionera.
The present study analyses the strategy of fast food industry firms to enter new markets. We investigate the attributes of cities that attract firms in this industry, and how firms from different chains interact with regard to their entry decisions. We found that firms adopt a me-too strategy: once a firm has entered an unexplored market, the others tend to also enter this market. The hypothesis of this paper is that there is some uncertainty regarding a certain market's potential, and the entry of one firm signals to others that this potential is high. Gains from discovering and entering a new, high-potential market fade quickly with the entry of the following firms, which gives a temporary advantage to the pioneer firm.
Competition in local-service sectors Cleeren, Kathleen; Dekimpe, Marnik G.; Verboven, Frank
International journal of research in marketing,
12/2006, Volume:
23, Issue:
4
Journal Article
Peer reviewed
Although economically very important, local-service sectors have received little attention in the extensive literature on competitive interactions. Detailed data gathering in these sectors is hard, ...not only because of the multitude of local players, but also because key service dimensions are hard to quantify. Using empirical entry models in the tradition of Bresnahan and Reiss Bresnahan, T.F., and Reiss, P.C. (1990). Entry in monopoly markets.
Review of Economic Studies, 57 (192), 531–553, Bresnahan, T.F., and Reiss, P.C. (1991). Entry and competition in concentrated markets.
Journal of Political Economy, 99 (5), 977–1009, we infer information on these sectors' degree of competition from the observed entry decisions in different local markets.
We apply the empirical entry model to the video-rental market. Additional entries of video stores are found to significantly increase the level of competition. This occurs not only when a second player enters the market, but also in markets already characterized by two or more incumbents. Unlike the predictions of many economic models, we find this increase to be larger when the entry occurs in a duopoly than in a monopoly.
Several control variables included in the model offer additional insights. As such, we find evidence of cannibalization from the upstream channel (movie theatres), but not from the downstream channel (premium cable). In addition, various socio-demographic characteristics of the trading zone, such as income and household size, are found to also have a significant impact on store performance.
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