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Consumer Search and Automobile Dealer Colocation

Author

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  • Charles Murry

    (Department of Economics, Boston College, Chestnut Hill, Massachusetts 02467;)

  • Yiyi Zhou

    (Department of Economics and College of Business, Stony Brook University, Stony Brook, New York 11794)

Abstract

Retailers colocate with rivals to take advantage of economies of agglomeration even though colocation implies greater competition. Using data on all new car transactions registered in Ohio from 2007 to 2014, we estimate a structural model of consumer search for spatially differentiated products that explicitly captures the agglomeration and competition effects of retail colocation. Search frictions generate an average of $333 per car in dealer markups. Agglomeration implies that dealer closures could harm incumbent colocated dealers, even though the incumbent dealers would face less competition. Our results inform the recent policy debate surrounding the massive downsizing of car retail networks and highlight the role of contagion in brick-and-mortar retailing.

Suggested Citation

  • Charles Murry & Yiyi Zhou, 2020. "Consumer Search and Automobile Dealer Colocation," Management Science, INFORMS, vol. 66(5), pages 1909-1934, May.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:5:p:1909-1934
    DOI: 10.1287/mnsc.2019.3307
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    References listed on IDEAS

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    Cited by:

    1. Dan Yavorsky & Elisabeth Honka & Keith Chen, 2021. "Consumer search in the U.S. auto industry: The role of dealership visits," Quantitative Marketing and Economics (QME), Springer, vol. 19(1), pages 1-52, March.
    2. Gokhan Guven & Eren Inci & Antonio Russo, 2017. "Apparent Competition in Two-Sided Platforms," CESifo Working Paper Series 6660, CESifo.
    3. Xavier D’Haultfœuille & Isis Durrmeyer & Philippe Février, 2019. "Automobile Prices in Market Equilibrium with Unobserved Price Discrimination," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(5), pages 1973-1998.
    4. Jianwei Xing & Benjamin Leard & Shanjun Li, 2019. "What Does an Electric Vehicle Replace?," NBER Working Papers 25771, National Bureau of Economic Research, Inc.
    5. Javier D. Donna & Pedro Pereira & Tiago Pires & André Trindade, 2022. "Measuring the Welfare of Intermediaries," Management Science, INFORMS, vol. 68(11), pages 8083-8115, November.
    6. Guangyu Cao & Ginger Zhe Jin & Xi Weng & Li‐An Zhou, 2021. "Market‐expanding or Market‐stealing? Competition with network effects in bike‐sharing," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 778-814, December.
    7. Liang, Yunjia & Zhou, Bo & Zhao, Shaoyang, 2024. "Risking or de-risking? The effect of banking competition on large state-owned banks and small and medium-sized enterprise lending: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    8. Sander Heinsalu, 2023. "Greater search cost reduces prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 923-947, April.
    9. Atayev, Atabek, 2022. "Uncertain product availability in search markets," Journal of Economic Theory, Elsevier, vol. 204(C).
    10. Atabek Atayev, 2021. "Uncertain Product Availability in Search Markets," Papers 2109.15211, arXiv.org.
    11. José L Moraga-González & Zsolt Sándor & Matthijs R Wildenbeest, 2021. "Simultaneous Search for Differentiated Products: The Impact of Search Costs and Firm Prominence," The Economic Journal, Royal Economic Society, vol. 131(635), pages 1308-1330.
    12. Sander Heinsalu, 2021. "Costlier switching strengthens competition even without advertising," Papers 2104.08934, arXiv.org.
    13. Wang, Shixuan & Syntetos, Aris A. & Liu, Ying & Di Cairano-Gilfedder, Carla & Naim, Mohamed M., 2023. "Improving automotive garage operations by categorical forecasts using a large number of variables," European Journal of Operational Research, Elsevier, vol. 306(2), pages 893-908.
    14. Jiarui Liu, 2021. "Sequential Search Models: A Pairwise Maximum Rank Approach," Papers 2104.13865, arXiv.org, revised Nov 2021.
    15. Atayev, Atabek, 2021. "Uncertain product availability in search markets," ZEW Discussion Papers 21-089, ZEW - Leibniz Centre for European Economic Research.

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