We highlight the importance of 'centrality' for pricing. Firms characterized by a more central position in a spatial network are more powerful in terms of having a stronger impact on their competitors' prices and on equilibrium prices. These propositions are derived froma simple theoretical model and investigated empirically for the retail gasoline market of Vienna, Austria.We compute a measure of network centrality based on the locations of gasoline stations in the road network. Results from a spatial autoregressive model show that prices of gasoline stations are more strongly correlated with prices of central competitors.
We empirically investigate the importance of centrality (holding a central position in a spatial network) for strategic interaction in pricing for the Austrian retail gasoline market. Results from spatial autoregressive models suggest that the gasoline station located most closely to the market center - defined as the 1-median location - exerts the strongest effect on pricing decisions of other stations. We conclude that centrality influences firms' pricing behavior and further find that the importance of centrality increases with market size.
Space is a crucial variable in any economic activity. Spatial Economics is the branch of economics that explicitly aims to incorporate the space dimension in the analysis of economic phenomena. From its beginning in the last century, Spatial Economics has contributed to the understanding of the economy by developing plenty of theoretical models as well as econometric techniques having the “space” as a core dimension of the analysis. This edited volume addresses the complex issue of Spatial Economics from a theoretical point of view. This volume is part of a more complex project including another edited volume (Spatial Economics Volume II: Applications) collecting original papers which address Spatial Economics from an applied perspective.
Spatial quality choice is introduced, where consumers are horizontally differentiated by taste and firms vertically differentiated by quality location, within an equilibrium model of duopoly competition characterized by asymmetric fixed and variable costs. Firms choose quality location followed by prices but then may vertically re-locate their quality offerings based on changing horizontal consumer taste. A monopolistic equilibrium solution arises with firms achieving positive economic profits through price-quality markups exceeding marginal costs. Under strict inequality conditions, each firm acts as a monopolistic competitor within a range of quality choices governed by multiple relative differentiation outcomes. On the other hand, vertical re-location exhibits a resistance to change on the part of vertically located firms such that firms dislike quality re-location and prefer stable preferences in quality. Such resistance to change is overcome by firms re-locating their quality offerings to maximize monopolistic brand-space gains. It is argued that more horizontal differentiation may force more product differentiation by vertical quality relocation. A relative change in quality preferences may result in wider quality spreads in the market through vertical quality re-locations, even though the resistance to change arguments may still hold good.
The price of a good is a vital tool for allocating resources in our economy. The relative prices of many similar or related goods can serve to sort demand between markets to ensure that resources are spent where they are most valued. Firms and consumers can both act to move resources between markets and in so doing alter relative prices as markets clear. The process by which this occurs is quite intricate and unique to the goods, the market structure, and supply constraints in question. These cross-market interactions complicate otherwise simple exchanges between buyers and sellers and understanding market sorting behavior has become an ongoing endeavor of the economics literature. This volume comprises my collective works investigating inter-market sorting, with particular attention to the role of pricing as both a sorting mechanism and signal of relative valuation. I examine both the firm and consumer sides of markets. I use natural experiments to demonstrate the effects of changing demand and supply conditions on prices and quantities. My work is found in three chapters, each examining a distinct market and research question under this greater theme. Chapter 1 considers horizontally differentiated goods, homes in different real estate markets, and demonstrates the efficiency with which consumers alter their willingness to pay when faced with changes in relative cost of ownership. The demand for housing is heavily influenced by access to employment opportunities. The cost of gasoline determines the cost of such access and therefore, the relative prices in markets with varying commuting needs. Locally exogenous gasoline price movements demonstrate the causal impact of higher fuel costs on urban housing markets: a shift of market demand towards real estate markets with less costly commutes. Higher fuel prices increase the value of real estate with shorter commutes and easier access to driving alternatives, raising housing costs in urban centers and increasing demand for public transportation. Every incremental $1 per gallon of gasoline reduces home values by .143 percent per commute mile, or $5,191 for the average home and commute. This translates into a discount rate of 6.4 percent, comparable to mortgage rates for the period. The findings describe an efficient real estate market and emphasize the urgency of proper energy policy. Chapter 2 demonstrates how a firm's capacity constraint can interrelate prices in markets with very different demand segments by studying the airline industry. Air freight is an important dimension of the airline services industry that is often ignored. I examine the cross-price effects of air freight and air passenger service when serviced by a common carrier. Air freight represents one-third of all tonnage shipped by air and aircraft weight limitations are often binding constraints. I utilize mandatory reporting data on U.S. domestic fares, passenger counts, capacities, and cargo weight to measure the trade-off that airlines face in choosing to carry cargo or passengers. I find evidence that average price levels and the degree of price discrimination between passenger groups increase for routes with higher cargo fill rates. An airline's ability to carry freight causes prices paid by passengers to rise by an average of 5.4 percent, and a one standard deviation rise in freight fill rates raises passenger prices by 10.6 percent. Chapter 3 examines consumer demand and firm pricing strategies for a vertically differentiated set of goods in the retail sector. Firms create hierarchical decision structures to facilitate operations across markets. If incentives are not complete, managers may not make efficient, profit-maximizing choices. I demonstrate one such inefficiency where a firm's optimal pricing requires coordination across brands that are managed by distinct operational divisions. I examine the entry of a vertically and spatially differentiated national retailer into new markets by its three brands, the pricing response by its other nearby brands, and the quantity sold by those stores. An event study regression approach provides evidence that the different brands react competitively to entry. These three case studies demonstrate some of the intricate processes by which consumers and producers sort resources between related markets.
"Portes suggests that immigration constitutes an especially appropriate Mertonian 'strategic research site' for economic sociology in that it provides very good opportunities for investigating the embeddedness of economic relationships in social situations....the contributors expand the conventional domain of economic sociology quite literally in both time and space."—Contemporary Sociology "Alejandro Portes and his splendid band of collaborators make clear that the causes, processes, and consequences of migration vary dramatically from group to group, that a group's history makes a profound difference to its fate in the American economy. They have produced a sinewy book, a book worth arguing with."—Charles Tilly, Columbia University The Economic Sociology of Immigration forges a dynamic link between the theoretical innovations of economic sociology with the latest empirical findings from immigration research, an area of critical concern as the problems of ethnic poverty and inequality become increasingly profound. Alejandro Portes' lucid overview of sociological approaches to economic phenomena provides the framework for six thoughtful, wide-ranging investigations into ethnic and immigrant labor networks and social resources, entrepreneurship, and cultural assimilation. Mark Granovetter illustrates how small businesses built on the bonds of ethnicity and kinship can, under certain conditions, flourish remarkably well. Bryan R. Roberts demonstrates how immigrant groups' expectations of the duration of their stay influence their propensity toward entrepreneurship. Ivan Light and Carolyn Rosenstein chart how specific metropolitan environments have stimulated or impeded entrepreneurial ventures in five ethnic populations. Saskia Sassen provides a revealing analysis of the unexpectedly flexible and vital labor market networks maintained between immigrants and their native countries, while M. Patricia Fernandez Kelly looks specifically at the black inner city to examine how insular cultural values hinder the acquisition of skills and jobs outside the neighborhood. Alejandro Portes also depicts the difference between the attitudes of American-born youths and those of recent immigrants and its effect on the economic success of immigrant children.
