Abstract
This paper develops a model of dealership rivalry for the U.S. auto industry in line with the research program of Joe Bain. In Bain's research, the literature depicts the auto industry as a differentiated oligopoly with non-price competition and price collusion. It has established advertising and R&D rivalry successfully, but has focused little attention to dealership competition. Because Bain has given a dominant role to dealership competition, this paper addresses the dealership rivalry problem. We found that a competitive model allowing a firm to react to a rival's past levels of advertising, R&D outlays, and the number of dealers, represents the firms' non-price competitive behavior well for the 1970–1996 period. The hypotheses we used have captured the joint effects of advertising, R&D, and dealerships, when explicit specifications for the financial constraints facing the firms are accounted for. We are able to statistically validate the hypothesis that U.S. firms do compete in dealership systems, as Joe Bain has predicted, within the differentiated oligopoly market structure. The results also allow some inferences regarding the sequential nature of non-price competition among the firms.
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