Essays in Industrial Organization of Spatially Differentiated Markets

On Tuesday 20 August 2024 Alina Ozhegova will hold a trial lecture on a prescribed topic and defend her thesis for the PhD degree at NHH.

The thesis explores questions related to strategic interaction in imperfectly competitive industries. It utilizes game-theoretic models and modern structural econometrics to analyze competition in various retail markets in Norway.

Alina Ozhegova´s thesis sheds light on firms' entry, location, and differentiation strategies, offering welfare and policy implications.

The first chapter investigates how firms use non-price attributes like product selection to exert market power. Focusing on the Norwegian grocery industry, Ozhegova shows that while pricing decisions for individual products are made nationally, product selection varies locally. Using an equilibrium model, she finds that firms in less competitive areas offer fewer products at higher prices. This highlights the strategic role of non-price factors in competition and suggests policy interventions to improve market welfare in remote areas.

The second chapter explores the entry decisions of multi-store firms in the Norwegian pharmaceutical market. Ozhegova and coauthors find that firms frequently open new outlets close to existing ones. The chapter aims to provide new evidence on what drives multi-store firms to enter the same local market. It proposes that firms already established in a market have a unique advantage in learning about local market demand through their sales observations. Essentially, they argue that these repeated entries into a market may be attributed to access to private information.

Finally, the third chapter studies product differentiation in a monopolistic competition setting. The thesis develops a novel theory of monopolistic competition that considers the horizontal heterogeneity of consumers in their spatial locations and the vertical heterogeneity of firms in their productivities. The model shows that more productive firms target larger local markets, leading to positive assortative matching. The researchers validate the model using data from the hairdressing industry and conduct counterfactual experiments to assess the impact of changes in population density and production costs on market entry, competition, and consumer welfare.