Detecting Collusion in Spatially Differentiated Markets

WIFO Working Papers No. 479

50 Pages Posted: 20 Jan 2015

See all articles by Matthias Firgo

Matthias Firgo

Austrian Institute of Economic Research (WIFO)

Agnes Kuegler

affiliation not provided to SSRN

Date Written: October 17, 2014

Abstract

The empirical literature on mergers, market power and collusion in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we suggest a novel approach that allows for the detection of collusive behaviour among a group of firms making use of information on the spatial structure of horizontally differentiated products. By estimating best response functions using a spatial econometrics approach, we focus on differences in the strategic interaction in pricing between different groups of firms as well as on differences in price levels. We apply our method to the market for ski lift tickets using a unique data set on ticket prices and detailed resort-specific characteristics covering all ski resorts in Austria. We show that prices of ski resorts forming alliances are higher and increase with the size and towards the spatial center of an alliance. Strategic interaction in pricing is higher within than outside alliances. All results are in line with the findings of theoretical models on collusion in horizontally differentiated markets.

Keywords: tacit collusion, strategic alliances, spatial differentiation, ski lift ticket prices

JEL Classification: C21, D43, L11, L41, L83, R32

Suggested Citation

Firgo, Matthias and Kuegler, Agnes, Detecting Collusion in Spatially Differentiated Markets (October 17, 2014). WIFO Working Papers No. 479, Available at SSRN: https://ssrn.com/abstract=2551794 or http://dx.doi.org/10.2139/ssrn.2551794

Matthias Firgo (Contact Author)

Austrian Institute of Economic Research (WIFO) ( email )

Arsenal Objekt 20
Wien, 1030
Austria
+43-1-7982601-471 (Phone)

Agnes Kuegler

affiliation not provided to SSRN

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