Competition and dealership agglomeration in new car markets

Abstract

The theoretical literature addressing firm agglomeration is rich and varied. Yet few empirical studies have been published. This article investigates the impact of competition on dealership agglomeration in new car markets in the United States. The driving distance between Dodge and Ford dealerships is used as a proxy for the extent of market agglomeration. The number of new car dealers, used car dealers and automotive service facilities are included to measure the extent of competition in the market. Both the land area and the population of the county are used as measures of market size. The geographical dimension for the market is taken to be the county, with counties included in multi-county Metropolitan Statistical Areas (MSAs) excluded from the study. The empirical results provide no support for the expectation that competition drives agglomeration.

Notes

¹In very few cases, Dodge and Ford are sold out of the same facility. These markets were excluded from this study.

²In evaluating performance, several large manufacturers use the county as the relevant geography for non-MSA dealers and the MSA for others. MSAs are defined by the US Office of Management and Budget.

³That site also provides the county for each dealership, facilitating the identification and exclusion of dealerships located in multi-county MSAs.

⁴ www.mapquest.com