Spatial competition in automobile retailing

Despite a rich literature on the determinants of automobile pricing, there is relatively little formal evidence regarding the effects of spatial intrabrand competition in auto retailing. Using an extremely large sample of tax registrations in Texas (USA) for 19 of the most popular sedans, we examine how the closeness of a dealer selling the same make and model of vehicle affected the final price. We find very strong evidence that the proximity of a same-brand dealer reduces prices significantly, though we find smaller effects for the lowest priced vehicles, a result consistent with the view that such vehicles are sold essentially at cost in order to satisfy Corporate Average Fuel Economy (CAFE) standards and related fleet characteristic regulations.