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PRODUCT VARIETY AND COMPETITION IN THE RETAIL MARKET FOR EYEGLASSES

Authors

  • RANDAL WATSON

    1. Author's affiliation: Department of Economics, University of Texas at Austin, 1 University Station C3100, Austin, Texas, 78712 U.S.A.
      e-mail: watson@eco.utexas.edu
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  • *This paper is based on chapter 3 of my doctoral dissertation. For advice and guidance at various stages of this project I am grateful to Michael Mazzeo, Robert Porter and Asher Wolinsky. Thanks for comments are also due to David Barth, Avi Goldfarb, Shane Greenstein, Ithai Lurie, Brian Viard and Robert Vigfusson, to the Editor and anonymous referees, and to seminar participants at Northwestern, Kyoto IER, Tokyo, Texas, Melbourne, Analysis Group and the 2004 IIOC and NASMES conferences. Financial support is gratefully acknowledged from a Northwestern University Graduate School Graduate Research Grant and from the University's Centre for the Study of Industrial Organization. All errors herein are my responsibility.

  • Author's affiliation: Department of Economics, University of Texas at Austin, 1 University Station C3100, Austin, Texas, 78712 U.S.A.
    e-mail:watson@eco.utexas.edu

ABSTRACT

I use original data on eyewear retailers in a cross-section of U.S. markets to study how firms' product range choices vary with the degree of local competition. Market level regressions show average per firm variety declining in the number of rivals. In regressions at the firm level, taking account of spatial differentiation within each market, a non-monotonic relationship between product ranges and competition is apparent. As the number of nearby rivals increases, per firm variety may first rise before eventually declining. Explanations for this pattern are offered, in terms of a tradeoff between business stealing and clustering effects.

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