Research Details

Abstract

This paper analyzes the effect of market concentration and product differentiation on the observed outcomes of competition among oligopolists. The empirical framework is designed to examine whether competition is less intense in markets with equal levels of concentration, but more differentiation among the products offered. A two-stage estimation procedure is proposed to address the endogeneity problem inherent when comparing outcomes across different market structures. I estimate the competitive effects using data from a cross-section of oligopoly motel markets located along U.S. interstate highways. The results indicate that firms benefit substantially by offering differentiated products. The presence of any market competitor drives down prices, but the effect is much smaller when the competitor is a different product type. Differentiation is optimal product choice behavior because the resulting competition among firms is less tough when their products are differentiated.

Type

Article

Author(s)

Michael Mazzeo

Date Published

2002

Citations

Mazzeo, Michael. 2002. Competitive Outcomes in Product-Differentiated Oligopoly. Review of Economics and Statistics. 84(4): 716-728.