Spatial differentiation and price discrimination in the cement industry: evidence from a structural model

Nathan H. Miller and Matthew Osborne

RAND Journal of Economics, 2014, vol. 45, issue 2, 221-247

Abstract: type="main">

We estimate a structural model of the cement industry that incorporates spatial differentiation and price discrimination, focusing on the US Southwest over 1983–2003. We leverage the structure of the model to obtain consistent estimates of the underlying parameters using data on market outcomes that are substantially aggregated. Our results indicate that transportation costs around $0.46 per tonne-mile rationalize the data. This friction enables relatively isolated plants to obtain higher prices from nearby customers. We further find that disallowing price discrimination would create $30 million in consumer surplus annually and show how the model can identify suitable divestitures in merger analysis.

Date: 2014
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