Centrality and pricing in spatially differentiated markets: The case of gasoline |
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Affiliation: | 1. Austrian Institute of Economic Research, Arsenal, Objekt 20, 1030 Vienna, Austria;2. Vienna University of Economics and Business, Welthandelsplatz 1, 1020 Vienna, Austria;1. Universitat de Girona, Girona, Spain;2. Middlesex University London, London, United Kingdom;3. University of Birmingham, Birmingham, United Kingdom |
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Abstract: | 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 from a 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. |
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