Prices , Spatial Competition , and Heterogeneous Producers : An Empirical Test *

@inproceedings{Syverson2006PricesS,
  title={Prices , Spatial Competition , and Heterogeneous Producers : An Empirical Test *},
  author={Chad Syverson and NBER syverson},
  year={2006}
}
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… CONTINUE READING
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