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Industrial Organization Workshop - Yiyi Zhou

Wed, 05/10/2017 - 11:40am

Yiyi Zhou

Stony Brook University

498 Uris Hall

"Consumer Search and Automobile Dealer Colocation (joint w/Charles Murry)"

Retailers co-locate with rivals in order to take advantage of economies of agglomeration, even though co-location implies greater competition. Using data of all new car transactions in a large U.S. metropolitan area, we estimate a structural model of consumer search for spatially differentiated products that explicitly captures the agglomeration and competition effects of retail co-location. Our results suggest that search is quite limited due to a considerably large magnitude of search cost which is estimated to be around $73 per mile on average. The average retail price would be $342 lower in the absence of search frictions and hence no agglomeration effect of co-location. We also show that the agglomeration effect on neighboring dealers increases in consumers' disutility from distance and decreases in the variance of their search cost shocks. Moreover, the agglomeration effect dominates the competition effect when there is not much randomness in consumers' search choice.

Event Categories: Industrial Organization