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Spatial Price Discrimination in Two‐Dimensional Competitive Markets
Author(s) -
Sanner Helge,
Scholer Klaus
Publication year - 1998
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/0022-4146.00083
Subject(s) - monopolistic competition , price discrimination , intuition , economics , microeconomics , perfect competition , market size , industrial organization , monopoly , commerce , philosophy , epistemology
Intuition suggests that firms that can apply price discrimination make higher profits than firms that are restricted in their pricing policy. In this paper, we show that, in general, this is not the case. In the framework of a two‐dimensional spatial model with elastic demand à la Lösch, we further investigate the interplay of transport costs, competition, and price policy. One of our results is that under realistic specifications of parameters each firm gains a monopolistic area in the center of its market that has the same shape as the entire market, but with a convexly or concavely distorted separating line, depending on the extension of the market.