Market analysis with differentiated products. A spatial competition application

Resumen

The objective of this thesis is, on one hand, to develop a valid method to define the relevant market in an industry with differentiated products and, on the other hand, to study the strategies of product differentiation in a market with a given structure. In the first part of the work, I develop a formal analysis of market definition providing the framework for describing the conditions that a test must satisfy in order to define the relevant market under the rules of the main jurisdictions. An application is done for a retailing market where products are differentiated by means of location and other dimensions and the results show the prominent role played by supply-side substitution in the definition of the relevant market in retailing sectors. The empirical model using sales data from a set of movie theatres in the North of Spain incorporates the observed locations of consumers vis-à-vis the stores and illustrates some of the main features of spatial competition. Finally, I analyse the product differentiation strategies of duopolists and the results show evidence that the theoretical equilibrium with firms choosing maximum differentiation in one dimension and minimum differentiation in the other dimensions tend be supported by the observed behaviour of the Spanish movie theatres.