This paper applies spatial econometrics to hamburger price data to assess the degree of substitutability of products and locations of spatially dispersed franchised chains. First, while intrachain price variation exists, I find that hamburger prices at neighboring outlets of different chains are spatially uncorrelated. I conclude that their products are not close substitutes, which provides an explanation for why price promotions have not raised market share. I do find spatial price correlation, however, among proximate outlets of separate franchisees within the same chain. This finding implies that customers view proximate locations of a chain as substitutes.
Kalnins, A. (2003). Hamburger prices and spatial econometrics[Electronic version]. Retrieved [insert date], from Cornell University, School of Hotel Administration site: http://scholarship.sha.cornell.edu/articles/657