The effect of retail competition on relationship-specific investments: evidence from new car advertising

Charles Murry

International Journal of Industrial Organization, 2018, vol. 59, issue C, 253-281

Abstract: Longstanding state regulations restrict car manufacturers from terminating relationships with dealers, creating differences in retail competition across brands and markets. I use this variation to identify the causal effect of dealer competition on dealer and manufacturer local market advertising. I find that greater intra-brand dealer competition is associated with lower dealer advertising. US brand manufacturers decrease advertising with an additional same-brand dealer, but there is zero average effect for non-US brand manufacturers. The results are evidence that manufacturers can encourage retail relationship-specific investments by providing downstream market power. I discuss theories of oligopoly and vertical relationships that may explain the results and the relevance of the findings to the effects of state automobile franchise regulation and the recent financial troubles of US car manufacturers.

Keywords: Franchise regulation; Non-price competition; Automobile retailing; Vertical relationships (search for similar items in EconPapers)
JEL-codes: L13 L62 M37 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:59:y:2018:i:c:p:253-281

DOI: 10.1016/j.ijindorg.2018.03.010

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