ABSTRACT – Large distance and border effects on trade flows in some industries may result from the collusive division of geographic markets. In the Brazilian cement industry, traditional gravity equations fit the data well, yet limited regional flows are due to firms´s strategic behavior. Thanks to a unique institutional setting and an unusually rich dataset, I directly control for trade costs which – despite their importance – cannot account for the observed segmentation of local markets at current prices. The paper highlights how collusive behavior can magnify the effects of distance, as firms use geography to coordinate on higher prices and less cross-hauling.
About The Author
Kellogg School of Management
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