Product Choice and Oligopoly Market Structure

Abstract

I propose an empirical model to analyze product differentiation and oligopoly market structure. The model endogenizes firms' product-type decisions, measures how effects of competitors differ depending on their product types, and can incorporate alternative specifications for the product choice game. I estimate using data from oligopoly motel markets along U.S. interstate highways; motel establishments are characterized by their quality choice. The results demonstrate a strong incentive for firms to differentiate. The effects of demand characteristics on product choice are also significant. Game specification is of minor importance, although differences in the games analyzed do affect equilibrium market structure predictions in some cases.