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Spatial Price Discrimination in Agricultural Product Procurement Markets: A Computational Economics Approach
Author(s) -
Graubner Marten,
Balmann Alfons,
Sexton Richard J.
Publication year - 2011
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aar035
Subject(s) - procurement , price discrimination , competition (biology) , economics , microeconomics , product (mathematics) , industrial organization , market power , monopsony , product market , monopoly , ecology , geometry , mathematics , management , incentive , biology
Significant transport costs and spatially distributed supply and processing create oligopsony power in agricultural markets. Price discrimination expressed in the form of partial or complete absorption of freight charges by processors is often observed in these environments, but we understand little about how these pricing decisions are made. Analytical approaches are often intractable. As an alternative, we propose a computational economics approach to analyze a general spatial competition model and study firms' choices of spatial pricing policy. Instead of the commonly presumed free‐on‐board pricing, we find that buyers choose price discrimination, either through uniform delivered pricing or through partial freight absorption.