Premium
PRODUCT DIFFERENTIATION, PRICING POLICY AND EQUILIBRIUM *
Author(s) -
Fraja Giovanni,
Norman George
Publication year - 1993
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/j.1467-9787.1993.tb00230.x
Subject(s) - microeconomics , economics , price discrimination , product (mathematics) , product differentiation , welfare , limit price , price level , monetary economics , market economy , geometry , mathematics , cournot competition
. This paper studies the price‐location equilibrium of duopolists supplying differentiated goods and competing in a spatial market with elastic demand. We show that a price‐location equilibrium exists under all three pricing policies traditionally considered by the literature: f.o.b. mill, uniform delivered, and spatially discriminatory pricing. We also show that firms always cluster at the market center. The second part of the paper studies the endogenous choice of pricing policy. A surprising feature of the resulting equilibrium is asymmetry. The greater the extent to which the goods are substitutes, the more likely is it that one firm will choose f.o.b. pricing and the other price discrimination. Finally, the welfare consequences of the analysis show some interesting trade‐offs.