Prices, Spatial Competition and Heterogeneous Producers: An Empirical Test

26 Pages Posted: 26 Jul 2007

See all articles by Chad Syverson

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Abstract

Homogeneous-producer models attribute lower prices in denser markets solely to lower optimal markups. I argue here that when producers have different production costs, competition-driven selection on costs also reduces prices. This selection mechanism can be distinguished from the homogenous-producer case because it implies that higher density leads not only to lower average prices, but to declines in upper-bound prices and price dispersion as well. I find empirical support for this mechanism in the prices of ready-mixed concrete plants. I also show these findings do not simply reflect lower factor prices in dense markets, but result instead because dense-market producers are more efficient.

Suggested Citation

Syverson, Chad, Prices, Spatial Competition and Heterogeneous Producers: An Empirical Test. Journal of Industrial Economics, Vol. 55, No. 2, pp. 197-222, June 2007, Available at SSRN: https://ssrn.com/abstract=1003035 or http://dx.doi.org/10.1111/j.1467-6451.2007.00308.x

Chad Syverson (Contact Author)

University of Chicago - Booth School of Business ( email )

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United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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