Letters in Spatial and Resource Sciences

, Volume 9, Issue 2, pp 157–168 | Cite as

Endogenous market boundary and spatial price discrimination with a quadratic production cost function

Original Paper

Abstract

This paper examines the welfare effects of spatial price discrimination. In the model a monopolist sells its product to a continuum of consumers distributed uniformly along a line market in which the market boundary is endogenously determined. We find that the monopolist always serves more consumers and sells more outputs under discriminatory pricing than under uniform pricing. Nevertheless, the welfare ranking between the two pricing policies is ambiguous. Results show that uniform pricing is more socially desirable than discriminatory pricing as long as the production cost function is sufficiently convex. This result is in sharp contrast to the finding in the literature that spatial price discrimination is more socially desirable than uniform pricing.

Keywords

Endogenous market boundary Spatial price discrimination Monopoly Cost convexity 

JEL Classification

D42 R32 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  1. 1.Department of International BusinessSoochow UniversityTaipeiTaiwan

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