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Trade flows in a spatial oligopoly: gravity fits well, but what does it explain?

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  • Alberto Salvo

Abstract

Large distance and border effects on trade flows in some industries may result from the collusive division of geographic markets. In the Brazilian cement industry, traditional gravity equations fit the data well, yet limited regional flows are due to firms' strategic behaviour. Thanks to a unique institutional setting and an unusually rich data set, I directly control for trade costs, which – despite their importance – cannot account for the observed segmentation of local markets at current prices. The paper highlights how collusive behaviour can magnify the effects of distance, as firms use geography to coordinate on higher prices and less cross‐hauling. Les effets de grande distance et de frontières sur les flux de commerce dans certaines industries peuvent être le résultat d'une division collusive des marchés géographiques. Dans l'industrie brésilienne du ciment, les équations de gravité s'ajustent bien aux données, mais les flux régionaux limités entre régions sont attribuables au comportement stratégique des firmes. Grâce à un contexte institutionnel unique et à une base de données inhabituelles, l'auteur a pu prendre en compte directement les coûts du commerce qui – malgré leur importance – ne peuvent pas expliquer la segmentation observée des marchés locaux aux prix courants. Le mémoire met en lumière comment le comportement de collusion peut magnifier les effets de distance à proportion que les firmes utilisent la géographie pour assurer une coordination fondée sur des prix plus élevés et moins de transport transfrontalier.

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  • Alberto Salvo, 2010. "Trade flows in a spatial oligopoly: gravity fits well, but what does it explain?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(1), pages 63-96, February.
    • Handle: RePEc:wly:canjec:v:43:y:2010:i:1:p:63-96
    DOI: 10.1111/j.1540-5982.2009.01564.x
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    2. Bruce Cater & Byron Lew, 2018. "The impact of climate on the law of one price: A test using North American food prices from the 1920s," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(4), pages 1191-1220, November.
    3. Matthias Hunold & Kai Hüschelrath & Ulrich Laitenberger & Johannes Muthers, 2020. "Competition, Collusion, and Spatial Sales Patterns: Theory and Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 68(4), pages 737-779, December.
    4. A. Kerem Cosar & Paul L. E. Grieco & Felix Tintelnot, 2015. "Borders, Geography, and Oligopoly: Evidence from the Wind Turbine Industry," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 623-637, July.
    5. Mireille NTSAMA ETOUNDI, 2014. "Impact de la rente pétrolière sur la demande des pays frontaliers du Cameroun," Working Papers 201417, CERDI.
    6. Roux, Catherine & Santos-Pinto, Luís & Thöni, Christian, 2016. "Home bias in multimarket Cournot games," European Economic Review, Elsevier, vol. 89(C), pages 361-371.
    7. Bhattacharjea, Aditya & Sinha, Uday Bhanu, 2015. "Multi-market collusion with territorial allocation," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 42-50.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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