Maximum or Minimum Differentiation? An Empirical Investigation into the Location of Firms

We empirically test some implications from location theory using the location of Los Angeles area gasoline stations in physical space and in the space of product attributes. We consider the effect of demand patterns, entry costs, and several proxies for competition -- the total number of stations, the proportion of independent stations, and the proportion of same-brand stations in a market -- on the tendency for a gasoline station to be physically located more or less closely to its competitors. Using an estimation procedure that controls for spatial correlation and controlling for market characteristics as well as non- spatial product attributes, we find that firms locate their stations in an attempt to spatially differentiate their product as general market competition increases. In other words, the incentive to differentiate in order to soften price competition dominates the incentive to cluster locations to attract consumers from rivals. We also find that spatial differentiation increases as stations become more differentiated in other station characteristics.product differentiation, spatial theory, location theory, retail gasoline

Non-Profits and Price-Fixing: The Case of the Ivy League

A number of private colleges and universities have chosen not to compete for students by offering merit-based financial aid. In addition, until 1990 many of these schools jointly calculated a student's financial need. I theoretically and empirically analyze the effects of different financial aid policies on prices paid by students and tuition revenues earned by schools. I model university decision-makers as choosing prices for needy and non-needy students and the quality of the school to maximize a utility function subject to a non-profit constraint. While schools are altruistic in the sense that they derive utility by admitting (qualified) needy students, utility increases with a reduction in price competition for these students. The effect of jointly determining the price charged to needy students is to increase tuition and the average price paid by students receiving aid, while the effect on average tuition revenue earned per student is ambiguous. Using data from the Department of Education and from Peterson's Guides, I find that the adoption of a need-only policy significantly increases the price paid by non-needy students (tuition). The evidence also suggests that students who would qualify for merit-based aid pay higher prices at need-only schools. In addition, a need-only policy substantially increases earnings from tuition; schools that adopt a need-only policy earn an additional $1,400 per student annually. Explicitly coordinating on financial aid awards achieves broadly the same effects as does tacit collusion.price-fixing, non-profits, collusion, tacit collusion

Manipulating Interface Standards as an Anti-Competitive Strategy

The creation of interface standards enables competition at the level of components, rather than competition in complete systems. Consumers often benefit from component competition. However, the standard-setting process might be manipulated to achieve anticompetitive ends. We consider the conditions under which a standards consortium could impose anticompetitive burdens on the market, and several strategies such a consortium might employ to achieve anti-competitive objectives. We present a new strategy -- one-way standards -- and discuss the conditions under which it can be anticompetitive.http://deepblue.lib.umich.edu/bitstream/2027.42/50433/1/standards-tprc-jmm-netz.pd

Risks and futures markets and their impact on spot price, storage and exports.

The dissertation investigates the role of risk and commodities futures markets as risk management tools, and how they affect storage behavior, cash price formation and exports. The first essay analyzes the effect of the development of a futures market on storage and spot price volatility. Commodity storage is inherently risky since the agent cannot know the output price. The more risk averse are storers, the less storage they will undertake. The development of a futures market allows storers to eliminate price risk by allowing the storer to lock-in a return to storage. Theory shows that when a futures market develops, more storage occurs. Spot price then becomes less variable, since the more storage that occurs, the less spot price must adjust to shocks. Empirical analysis using data from the Chicago Board of Trade reveals that the results are sensitive to the competitive structure of the futures market. If the futures market is subject to manipulation, spot price variance increases, despite increased storage, due to artificial price spikes caused by attempted corners. The second essay models the effect of basis risk on storage behavior. The use of futures markets introduces basis risk, which arises because futures contracts do not correspond exactly to the commodity being hedged. The more closely the storer's wheat matches the wheat designated in the futures contract, the less basis risk is introduced, and the more storage occurs. The hypothesis that lower basis risk induces more storage is tested by estimating storage and drawdown curves for major corn and soybean markets. Results are mixed, though for many markets basis risk reduces storage, and increases the rate of drawdown. The third essay models storage and export behavior of each major wheat exporting country. While all agents can use American wheat futures markets, the only active wheat futures markets, foreign agents face exchange rate risk as well as basis risk. Thus, foreign agents face more risk than do American agents, and the model predicts that they will rely more on exports than on storage to absorb production shocks. Estimated export and storage equations are consistent with the hypothesis that risk affects storage and export behavior.Ph.D.EconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/103125/1/9303795.pdfDescription of 9303795.pdf : Restricted to UM users only

Maximum Or Minimum Differentiation? Location Patterns Of Retail Outlets

We empirically test implications from location theory using the location of Los Angeles-area gasoline stations in physical space and in the space of product attributes. We consider the effect of demand patterns, entry costs, and several proxies for competition on the tendency for a gasoline station to be physically located more or less closely to its competitors. Using an estimation procedure that controls for spatial autocorrelation and spatial autoregression, and controlling for market characteristics and nonspatial product attributes, we find considerable evidence that firms locate their stations in an attempt to spatially differentiate their product as market competition increases. © 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology