Competition in interrelated markets: An empirical study

This paper studies competition in small, concentrated, and interrelated mar kets. Our data set consists of price information from 486 driving schools i n 235 local markets in Sweden, which gives a large sample to test hypothese s on how market structure influences competition. The results show that the price in a market is lower if prices in nearby markets are low and the dis tances to them are short, as suggested in models of spatial competition. Mo reover, we find that prices in closely located markets are interdependent. It is also shown that prices are increasing in firm concentration within a market, as most theories of oligopoly predict. (C) 1999 Elsevier Science BN ; All rights reserved.