Measuring the effect of local competition on prices in a context of spatial differentiation
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This paper examines the problem of estimation bias when the effect of local competition on prices is investigated. The hotel industry was chosen as a representative case of industries that offer a spatially differentiated product. It is shown that, in this context, including spatial variables as controls can be especially useful for reducing bias in the cross-sectional estimator. We also show how our results are robust to alternative size definitions for geographically relevant markets.
KeywordsRetail prices Spatial differentiation Local competition Cross-sectional estimator
JEL ClassificationL11 L81 D43 C21
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