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NEP: New Economics Papers
Agricultural Economics
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Edited by: Angelo Zago
Universita degli Studi di Verona
Date: 2005-04-09
Papers: 3
This document is in the public domain, feel free to circulate it.
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In this issue we have:
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1. Uncertainty in a fisherey management game
Engwerda,Jacob
2. Supermarkets as a Natural Oligopoly
Ellickson, Paul
3. Does Sutton Apply to Supermarkets?
Ellickson, Paul
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1. Uncertainty in a fisherey management game
Engwerda,Jacob (Tilburg University, Center for Economic
Research)
In this paper we analyze the consequences of taking noise into
account in a simple twoperson fishery management game. Both a
stochastic and deterministic formulation are considered. Compared
to the noise-free model it is shown that the used stochastic
frameworkhas no implications for the equilibrium actions, whereas
in the deterministic formulation as well the number of as the
equilibrium actions themselves depend on the model parameters.
The various equilibrium actions predicted using the deterministic
frameworkseem to be quite plausible.
JEL: C61 C72 C73
Date: 2005
URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200536&r=agr
2. Supermarkets as a Natural Oligopoly
Ellickson, Paul
This paper uses a model of endogenous sunk cost (ESC)
competition to explain the industrial structure of the
supermarket industry, where a few powerful chains provide high
quality products at low prices. The predictions of this model
accord well with the features of the supermarket industry
documented here. Using a novel dataset of store level
observations, I demonstrate that 1) the same number of high
quality firms enter markets of varying sizes and compete side by
side for the same consumers and 2) quality increases with the
size of the market. In addition to documenting a local structure
of competition consistent with the ESC framework, I demonstrate
that the choice of quality by rival firms behaves as a strategic
complement. This key finding, which is consistent with an ESC
model of quality enhancing sunk outlays, eliminates several
alternative explanations of concentration in the supermarket
industry, including most standard models of cost-reducing
investment and product proliferation. These results suggest that
the competitive mechanisms sustaining high levels of
concentration in the supermarket industry are inherently
rivalrous and unlikely to lead to the emergence of a single
dominant firm.
Keywords: endogenous sunk costs, vertical product
differentiation, oligopoly, retail, supermarkets,
market concentration, dartboard, complementarity
JEL: L13 L22 L81
Date: 2005
URL: http://d.repec.org/n?u=RePEc:duk:dukeec:05-04&r=agr
3. Does Sutton Apply to Supermarkets?
Ellickson, Paul
This paper presents empirical evidence that endogenous sunk
costs play a central role in determining the equilibrium
structure of the supermarket industry. Using the endogenous sunk
cost (ESC) framework developed in Sutton (1991), I construct a
model of supermarket competition where escalating investment in
firm level distribution systems is driven by the incentive to
produce a greater variety of products in every store. Using the
observed networks of store and warehouse locations, I identify 51
distinct geographic markets covering nearly the entire United
States and empirically verify their relative independence.
Employing a dataset consisting of every supermarket operating in
these markets, I establish the existence of a lower bound to
concentration that remains strictly positive as market size
expands. Furthermore, I am able to verify that this non-
fragmentation result applies only to firms that have built their
own distribution networks, as the model predicts.
Keywords: endogenous sunk costs, vertical product
differentiation, oligopoly, retail, supermarkets,
market concentration
JEL: L13 L22 L81
Date: 2005
URL: http://d.repec.org/n?u=RePEc:duk:dukeec:05-05&r=agr
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