Spatial Price Equilibrium with Product Variety, Chain Stores, and Integer Pricing: An Empirical Analysis.

A spatial model that incorporates store locations and city topographic features is developed for the Edmonton, Alberta, video-cassette-rental market. Bertrand-Nash equilibrium prices are computed using a grid search algorithm that maximizes goodness-of-fit against observed prices. The fit is improved by taking into account differences between stores in product variety, the tendency of chains to set a common price for all member stores, and the tendency of chains to set whole dollar prices. Implications for further empirical research in spatial pricing are drawn.