Consumer Search and Automobile Dealer Colocation

Charles Murry and Yiyi Zhou ()
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Yiyi Zhou: Department of Economics and College of Business, Stony Brook University, Stony Brook, New York 11794

Management Science, 2020, vol. 66, issue 5, 1909-1934

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.

Keywords: car dealers; retail exit; agglomeration (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (16)

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