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Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry

32 Pages Posted: 17 Aug 2011 Last revised: 12 Sep 2014

Kerem Cosar

Stockholm School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); Boğaziçi University - Center for Economics and Econometrics

Paul L.E. Grieco

Pennsylvania State University - Department of Economics

Felix Tintelnot

University of Chicago Department of Economics

Date Written: August 18, 2011

Abstract

Using a micro-level dataset of Danish and German wind turbine installations, we estimate a structural oligopoly model with cross-border trade and heterogeneous firms. Our approach allows us to separately identify border-related variable costs from distance-related variable costs, and to put bounds on fixed costs of exporting. We find that the variable border costs are large, equivalent to 400 kilometers (250 miles) in transport costs. Counterfactual analysis shows that the fixed costs are also important; removal of fixed border costs would increase German market share in Denmark from 2 to 12 percent. Our analysis illustrates how border frictions affect firm profits and consumer surplus on each side of the border. The results indicate that a complete elimination of border frictions would increase total welfare in the wind turbine industry by 5 percent in Denmark and 10 percent in Germany.

Keywords: Borders, Home-Bias, Transport Costs, Oligopoly, Wind Energy, Trade

JEL Classification: C35, D43, F14, F15, L13, L64

Suggested Citation

Cosar, Kerem and Grieco, Paul L.E. and Tintelnot, Felix, Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry (August 18, 2011). Available at SSRN: https://ssrn.com/abstract=1910910 or http://dx.doi.org/10.2139/ssrn.1910910

A. Kerem Cosar

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Boğaziçi University - Center for Economics and Econometrics ( email )

Bogazici Universitesi
Bebek
Istanbul, 34342
Turkey

Paul L.E. Grieco (Contact Author)

Pennsylvania State University - Department of Economics ( email )

University Park
State College, PA 16802
United States

Felix Tintelnot

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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