Cooperative pricing in spatially differentiated markets

Abstract

The empirical literature on mergers, market power and cooperation in differentiated markets has mainly focused on methods relying on output and/or panel data. In contrast to this literature we propose an approach to analyze cooperative behavior among a group of firms only by making use of information on the spatial structure of a horizontally differentiated market. Using spatial econometrics techniques we focus on differences in the pricing behavior between different groups of firms, i.e. alliance and stand-alone firms. We apply this 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. Interaction in pricing is higher within than outside alliances. All results are in line with the findings of theoretical models on non-competitive pricing behavior in horizontally differentiated markets.