Location Choices of Multi-plant Oligopolists: Theory and Evidence from the Cement Industry

This paper studies spatial interdependencies in multi-plant production. I develop a model in which each firm decides locations of plant set and variable markups where its plants sell. Such location decision is guided by two competing forces: amplification of a firm’s competitive advantage through plant expansion and diminishing marginal benefits due to cannibalization. Despite a combinatorial discrete choice problem, the model is estimated efficiently provided the location game is submodular and aggregative. With this framework, I investigate the spatial organization of cement firms responding to environmental policy changes, and show that neglecting the interdependencies biases the estimate of carbon leakage.