Spatial Market Research Articles

Airport regulation and competition

In the airports industry, there is a trade off between imperfect (or monopolistic) competition and economic regulation (with the latter introducing separate economic distortions). The nature of the imperfectly competitive market in the supply of airport services is examined and it is suggested that market power is the consequence of the problems of gaining access to competing sites rather than of natural monopoly. Nevertheless, there are opportunities for substitution between airports (and other modes of transport) depending upon the characteristics of the market and historical and geographical circumstance although substitutability is too narrow a criterion for judging market power because of the transmittal effects of price competition in a spatial market. It is then suggested that some unusual economic characteristics of the industry provide an incentive for airports not to exploit market power and, absent these incentives, the adverse economic costs of exercising market power might be small. The paper concludes by suggesting that ex-post regulation of conduct provided for under normal competition law is probably sufficient to curb monopolistic excesses.

Equilibrium locations in a spatial model with sequential entry in real time

I describe the entry process in a spatial market over an infinite time horizon, with and without uncertainty over the follower’s entry date. I show that the later the follower is expected to enter, the closer to the center of the market the leader locates at the initial date. Therefore, the degree of product differentiation at equilibrium is smaller, the later the follower enters the market.

Combining Theoretical Approaches: The Case of Urban Land Value and Housing Market Dynamics

This article reviews the literature on urban land value formation and spatial housing market dynamics in a cross-disciplinary spirit. By doing so, an analytical device is elaborated based on the most relevant interpretative communities (i.e. schools, streams of thought) of urban (economic) research. The point of departure is general economic theory, and the goal is innovative and middle-range approaches. The key concepts stem from three different modes of analysis: the neoclassical; the neo-Marxist; and the institutionalist (and related theories). The idea is to combine the relevant ideas of each interpretative community into one model, which subsequently may be applied for further analysis of topics related to urban land value, such as property prices, housing submarkets, locational preferences and the physical and social quality of the neighbourhood as a synthesized theoretical framework.

Vertikal verbundene Märkte im Raum / Vertical Integration in Spatial Markets

Zusammenfassung Gibt es in einem räumlichen Markt einzelwirtschaftliche und/oder gesamtwirtschaftliche, wohlfahrtstheoretische Anreize zur vertikalen Integration zweier Marktstufen in einer organisatorischen Einheit (Konzern)? Zur Beantwortung dieser Frage wird ein Modell vorgestellt, in dem die Standorte der Händler entlang einer kreisförmigen Linie in gleichen Abständen angeordnet sind, und der sie beliefernde monopolistische Produzent im Mittelpunkt des Kreises angesiedelt ist. Zwei Fälle werden nun gegenübergestellt: Im ersten Fall sind Produzent und Händler organisatorisch und rechtlich getrennt; auf jeder Handelsstufe wird der Gewinn isoliert maximiert. Im zweiten Fall sind die Marktstufen vertikal integriert. Es kann gezeigt werden, daß die Gewinne auf allen Marktstufen im ersten Fall geringer sind als im zweiten Fall. Ferner führt der höhere Endverkaufspreis im ersten Fall auch zu geringeren Konsumentenrenten, und damit auch zu geringeren Wohlfahrtseffekten als im zweiten Fall. Im vorgestellten Modell besteht sowohl aus einzelwirtschaftlicher als auch aus gesamtwirtschaftlicher Sicht ein deutlicher Anreiz zur vertikalen Integration der Marktstufen.

Spatial Market Integration in the Presence of Threshold Effects

AbstractA large body of research has evaluated price linkages in spatially separate markets. Much recent research has applied models appropriate for nonstationary data. Such analyses have been criticized for their ignorance of transactions costs, which may inhibit price adjustments and thus affect tests of integration. This analysis utilizes threshold autoregression and cointegration models to account for a neutral band representing transactions costs. We evaluate daily price linkages among four corn and four soybean markets in North Carolina. Nonlinear impulse response functions are used to investigate dynamic patterns of adjustments to shocks. Our results confirm the presence of thresholds and indicate strong support for market integration, though adjustments following shocks may take many days to be complete. In every case, the threshold models suggest much faster adjustments in response to deviations from equilibrium than is the case when threshold behavior is ignored.

Spatial Competition and Location with Mergers and Product Licensing

This paper analyses mergers by Cournot firms producing differentiated products in a spatial market with product licensing by the merged firms. Product licensing allows the merged firms to co-ordinate their locations. If the degree of differentiation is not 'too low', a two-firm merger is more profitable for the merged firms than for the non-merged firms. The locational advantage created by the merger leads to the additional profit from the merger being an increasing function of the number of firms in the market. A two-firm merger generally increases total surplus and is therefore efficiency-enhancing. Moreover, there are circumstances in which every firm in the market wants to find a merger partner, consistent with the wave of mergers characteristic of many markets.

Price Discrimination and Spatial Market Structures

This study compares price discrimination and uniform pricing in a spatial market of the Hotelling type. At first spatial monopoly is studied to compare with the case of spatial monopolistic competition, which shows that price discrimination requires different sorting mechanism depending on the type of market structures. The study shows in particular some positive results of spatial monopolistic competition, comparing market shares, prices and output under the two pricing policies. If consumers are sorted according to the strengths of their brand preferences, their welfare increases even without any quantity increase. Moreover, most consumers may be better off under price discrimination than they are under uniform pricing if differences in strengths of brand preference are large enough.

Rice market integration in Bangladesh

Rice is the main source of protein and calorie intake in Bangladesh, contributing 93% of the total food-grain supply. The government liberalized the food grain sector in 1992 to ensure food and nutritional security. Policy instruments included removing controls, eliminating food subsidies, allowing private traders to import/export grains, and withdrawing restrictions on both domestic and international trade. The extent to which the rice market is integrated is fundamental to achieving policy objectives. This study examines rice market integration in Bangladesh from 1992 to 1997. Following Baffes (1991), the law of one price (LOP) was used to test spatial market integration using cointegration analysis. Our testing procedure is as follows. For the LOP to hold between prices in any two markets, prices must be cointegrated. This means that their difference must be stationary, with a constant mean, a constant variance, and a constant covariance between any two observations. A necessary, but not sufficient, condition for cointegration is that each series must be integrated of the same order. First order integration I (1) is called a unit root and implies that the series is stationary in first differences.

Surviving in a Competitive Spatial Market: The Threshold Capture Model

Many facility location decision models ignore the fact that for a facility to survive it needs a minimum demand level to cover costs. In this paper we present a decision model for a firm that wishes to enter a spatial market where there are several competitors already located. This market is such that for each outlet there is a demand threshold level that has to be achieved in order to survive. The firm wishes to know where to locate its outlets so as to maximize its market share taking into account the threshold level. It may happen that due to this new entrance, some competitors will not be able to meet the threshold and therefore will disappear. A formulation is presented together with a heuristic solution method and computational experience.

Assortment overlap: its effect on shopping patterns in a retail market when the distributions of prices and goods are known

The majority of households divide their grocery shopping between two or more stores each week. This paper examines the merchandising factors affecting the sharing of customers between stores through a pairwise analysis of their assortment overlap, price differentiation, and interstore distance. Results from a study of a market of 27 stores show that assortment overlap and interstore distance are determinants of shared patronage. Results also support hypothesized relationships concerning the differentiation of assortments and price in a spatial market.

Surviving in a Competitive Spatial Market: The Threshold Capture Model

Most facility location decision models ignore the fact that for a facility to survive it needs a minimum demand level to cover costs. In this paper we present a decision model for a firm that wishes to enter a spatial market where there are several competitors already located. This market is such that for each outlet there is a demand threshold level that has to be achieved in order to survive. The firm wishes to know where to locate its outlets so as to maximize its market share taking into account the threshold level. It may happen that due to this new entrance, some competitors will not be able to meet the threshold and therefore will disappear. A formulation is presented together with a heuristic solution method and computational experience.

Spatial price dynamics and integration in russian food markets

This paper evaluates dynamic elements of spatial market linkages for several important food commodities in the Russian Federation. We argue that delivery lags and other impediments to regional commodity trade may delay price responses. Standard regression and cointegration tests that compare contemporaneous price linkages in a short-run setting may not be flexible enough to address integration in such a setting. As an alternative, we complement conventional time-series tests of spatial integration with an analysis of dynamic responses to price shocks. The results provide tempered support for spatial integration, especially in retail markets. However, the results suggest that, because of gradual adjustments to price shocks, integration may occur mainly in the long run.

Competitive Location and Pricing on Networks

In this paper we consider a location and pricing model for a retail firm that wants to enter a spatial market where a competitor firm is already operating as a monopoly with several outlets. The entering firm seeks to determine the optimal uniform mill price and its servers' locations that maximize profits given the reaction in price of the competitor firm to its entrance. A tabu search procedure is presented to solve the model together with computational experience and an example.

Entrepreneurship and Extraregional Trade in the Producer Services

Traditional explanations of interaction (trade) in city systems fail to capture the breadth and complexity of extraregional markets in the producer services. Building on market‐process theory, which argues that markets are adaptive and rarely in equilibrium, the development of extraregional trade in the producer services was investigated as a form of firm‐level entrepreneurship. While firms' entrepreneurial behaviors are influenced by a variety of internal characteristics, such as entrepreneurial spirit, size, age, and ownership, it is argued that a firm's location is an important conditioning factor on the degree of success it achieves with market expansion. The hypothesis is evaluated using spatial market extent data developed from a survey of 615 producer service firms located in 16 Midwest cities. A firm's degree of entrepreneurship is indexed by a qualitative assessment of its marketing activities, ranging from “aggressive” to “none.” Cox proportional hazards models, in a spatial‐analog of survival analysis, were used to examine the influence of entrepreneurship on the spatial extents of firms' markets. The results confirm that location, more so than firm size or age, has a significant influence on the spatial extent of a firm's extraregional trade. The influence of location is generally complex: surfacing directly as a market scale effect, and indirectly as a conditioning factor on the success of a firm's entrepreneurial behavior. The results suggest that extraregional trade in producers services is predicated on more than just production cost (i.e., internal or external scale economies) or distribution cost (i.e., distance) factors, and that behavioral theories of the market can provide meaningful insight into the geography of market interaction.

A Bayesian approach to the spatial representation of market structure from consumer choice data

This paper is concerned with the spatial representation of market structure calibrated on actual or intended choice data. Previous models developed for that purpose accommodate consumer heterogeneity by estimating parameters for each consumer, typically using the method of maximum likelihood. This approach to heterogeneity avoids assuming any particular distribution of the individual level parameters across the sample, but leads to problems related to the consistency of the estimates, sufficient degrees of freedom, and the validity of asymptotic standard errors and test statistics. Of greater concern is the assumption of independence of the choice observations within the same individual. This assumption is necessary in a maximum likelihood (MLE) framework to make the estimation computationally feasible. However, the marketing and psychology literature (cf. Manrai, 1995; Tversky and Simonson, 1993; Kim et al., forth coming) demonstrates that dependencies among choice alternatives may exist, and negligence to take such covariance into account may lead to inconsistent estimates, reduced predictive validity, and incorrect managerial action. We develop a new multidimensional scaling (MDS) model that estimates spatial market structures from pick-any/ J choice data, provides for individual level parameters, and allows for correlations among the choice alternatives across individuals. We provide a Bayesian estimation method that overcomes the traditional problems associated with estimating models with such correlated alternatives. We provide an application to pick-any/ J data for various brands of portable telephones. In a comparative analysis, we show that the proposed model outperforms one in which the utilities are assumed to be uncorrelated across choice alternatives.

Profit‐Rate Maximization in Interdependent Markets: A Research Note

In the theory of the firm it is conventional to regard firms as (total)profit‐maximizing institutions. In this paper it is shown that the interdependence among firms that is characteristic of monopolistic competition makes it plausible for them also to choose to maximize the rate of profit on capital advanced. For a homogeneous product with inelastic total demand, such as gasoline retailing, firms acting as rational agents, facing fixed costs in a homogeneous spatial market, and choosing to set prices under rate of profit‐maximization can achieve higher total profits than firms operating under total profit‐maximizing objectives.

Competitive Location and Pricing on Networks

In this paper we consider a location and pricing model for a retail firm that wants to enter a spatial market where a competitor firm is already operating as a monopoly with several outlets. The entering firm seeks to determine the optimal uniform mill price and its servers' locations that maximize profits given the reaction in price of the competitor firm to its entrance. A tabu search procedure is presented to solve the model together with computational experience.

Tariffs, factor prices, and welfare in a spatial oligopoly

In this paper we derive endogenous tariff rates for a tariff revenue maximizing policy and a welfare maximizing policy (optimal tariff) in a spatial framework. The underlying model is that of a spatial oligopolistic market with domestic and foreign firms. We assess the outcomes of the model for different tariff rates and the free trade situation, the stress being on welfare considerations. Compared to the traditional theory of international trade and tariffs, this approach affords useful insights into the role of firms‘ locations and transportation costs for profits and consumers‘ surplus in the case of alternative trade policies.

The Spatial Integration of Livestock Markets in Niger

Livestock makes an important contribution to the livelihood of Sahelian farmers and herders and is a source of self-insurance against income shocks. By allocating livestock efficiently over space, spatial market integration should foster a sustainable use of pasture resources. It is also expected to favour the sharing of risk across regions by smoothing idiosyncratic price variations. Using monthly livestock price data from Niger, we show that livestock markets are poorly integrated. Prices are seldom cointegrated, suggesting that large price differentials occasionally persist between adjacent areas for long periods of time. A parity bounds approach indicates that one has to assume high transportation costs and large quality variations to reconcile the data with efficient spatial arbitrage. These results confirm descriptive studies that have emphasised regional segmentation in West African livestock trade.

Spatial Market Policy Modeling with Goal Targets

In this paper we show how the theory of variational inequalities can be applied to the formulation, qualitative analysis, and computation of a new competitive spatial market model in the presence of goal targets. The model allows the decision maker to impose supply goals at production locations, demand goals at consumption locations, and transportation goals between supply and demand locations, along with associated penalties for failure to comply. This work may be viewed as a contribution to the growing literature on the development of mathematical methodologies for policy modeling.