Competition in interrelated markets: An empirical study

Abstract

This paper studies competition in small, concentrated, and interrelated markets. Our data set consists of price information from 486 driving schools in 235 local markets in Sweden, which gives a large sample to test hypotheses on how market structure influences competition. The results show that the price in a market is lower if prices in nearby markets are low and the distances to them are short, as suggested in models of spatial competition. Moreover, we find that prices in closely located markets are interdependent. It is also shown that prices are increasing in firm concentration within a market, as most theories of oligopoly predict.