Branding and Spatial Preemption: An Application to the Hospitality Industry

In many settings where spatial preemption might be expected to produce tightly concentrated industry structures, firms share the market instead. Using a strategic investment model, I show that this can be rationalized by accounting for heterogeneity in consumer demand, particularly with respect to branding. I present an empirical example using data on the branded segment of the lodging industry, which has many characteristics associated with spatial preemption, but is also characterized by strong brand-preferences. Consistent with my model, I find that large lodging companies in Texas do not deter entry by competitors. ∗Federal Trade Commission, Bureau of Economics, 600 Pennsylvania Ave., Washington, DC, 20580. [email protected]. The opinions expressed here are those of the author and not necessarily those of the Federal Trade Commission or any of its Commissioners. †Earlier versions of the paper previously circulated with the title “Brand Effects and Entry Deterrence: An Examination of Spatial Preemption.” I am particularly grateful for comments from my committee – Francine Lafontaine, Thomas Lyon, Brian McCall, and Uday Rajan. In addition, I thank Anne Fleischer, Renata Kosova, colleagues at the Federal Trade Commission, and audiences at the Department of Justice, Analysis Group, Brattle Group, University of Southern California, University of Kansas, University of Louisville, and Econometric Society World Congress in Shanghai for their helpful comments.