Product Choice and Oligopoly Market Structure

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper proposes an empirical model to analyze the effects of product differentiation on oligopoly market structure. Building on prior studies of entry, the model endogenizes firms' product-type decisions and measures how the effects of competitors differ depending on their product types. The model can also accommodate alternative specifications for how the product choice game among oligopolists is played. This permits evaluation of competing explanations for market differentiation outcomes. I estimate the model using data from a cross-section of oligopoly motel markets located along U.S. interstate highways. The motel industry is well-suited for analysis of product choice; firms are characterized by their choice of product quality, which is an important business strategy for motel establishments. The results demonstrate a strong incentive for firms to differentiate their products. The effects of demand characteristics on product choice are also significant. Game specification, however, is of minor importance, even though differences in how entry and product-type decisions are made affect equilibrium market structure predictions in some cases.1

Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets

“…The main challenge in modeling heterogeneous firms' strategic entry in a simultaneous setting is that multiple equilibria almost always arise. Previous researchers have had to forgo firm-level information and only study the numbers of different types of entrants in an equilibrium (Mazzeo 2002;Greenstein and Mazzeo 2006), to revise certain features of the game such as information structure (Seim 2006), to estimate the game under different equilibria to check robustness (Jia 2008), or to focus on bounds instead of point identification (Ciliberto and Tamer 2007). Our paper provides a solution to this problem from an alternative angle.…”

Too close to be similar: Product and price competition in retail gasoline markets

“…Furthermore, none of these studies tests the equilibrium predictions of firm competition at the market-level. Mazzeo (2002) estimates product choice decisions of firms in the hotel industry, while Seim (2004) models local market entry decisions of video retailers. However, in these studies pricing decisions are not studied.…”

Vertical Differentiation with Variety-Seeking Consumers

“…Consider instead the market for motel rooms in the same city. Consumers do not value variety as much in that industry, so we would expect firms to offer different qualities, as in Mazzeo (2002).…”