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Journal of Industry, Competition and Trade

, Volume 18, Issue 2, pp 223–243 | Cite as

Can Banning Spatial Price Discrimination Improve Social Welfare?

  • Ziying Yang
  • Félix Muñoz-García
Article
  • 140 Downloads

Abstract

We analyze a two-stage sequential-move model of location and pricing to identify firm’s location, output, and welfare. We consider two pricing regimes (mill pricing and spatial price discrimination) and, unlike previous literature, allow in each of them for a non-uniform population density, non-constant location costs (i.e., the setup costs, such rental costs and land prices, differ by firm’s location), and endogenous market boundaries. Under constant location costs, our results show the firm locates at the city center under both mill and discriminatory pricing, and that output is larger under spatial price discrimination. Welfare comparisons are, however, ambiguous. Under non-constant location costs, we find the optimal location can move away from the city center, and does not coincide across pricing regimes. Compared with mill pricing, spatial price discrimination generates a higher level of output. We also find that welfare is higher (lower) under mill than under discriminatory pricing when transportation rates are low (high, respectively).

Keywords

Monopoly spatial price discrimination Non-uniform distribution Location choice Social welfare Mill pricing Non-constant location costs 

JEL Classification

D42 D60 L12 L50 R32 

Notes

Acknowledgments

We gratefully acknowledge the constructive comments of Professors Jia Yan, Ana Espinola-Arredondo, and Dr. PakSing Choi.

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.School of FinanceSouthwestern University of Finance and EconomicsChengduChina
  2. 2.School of Economic SciencesWashington State UniversityPullmanUSA

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