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Spatial Price Discrimination: The Use of Parking Coupons by Downtown Retailers

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Abstract

Price discrimination in monopolistically competitive markets affects firms' joint profits through several pecuniary and nonpecuniary externalities. Discrimination is a public good if the net effect is positive. Using a random utility shopping destination choice model we investigate the effect of a downtown parking coupon program that discriminates in favor of suburban consumers and against consumers based downtown. The program appears profitable for downtown stores collectively, but in the noncooperative Nash equilibrium stores do not participate. Participation is thus subject to free-riding. As the subsidy rate required to induce participation rises, profits fall. Whatever the subsidy rate, social surplus declines.

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Authors and Affiliations

  1. Department of Economics, University of Alberta, Edmonton, Alberta, T6G 2H4, Canada

    C. Robin Lindsey & Douglas S. West

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  1. C. Robin Lindsey
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  2. Douglas S. West
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Lindsey, C.R., West, D.S. Spatial Price Discrimination: The Use of Parking Coupons by Downtown Retailers. Review of Industrial Organization 12, 417–438 (1997). https://doi.org/10.1023/A:1007795629282

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  • DOI: https://doi.org/10.1023/A:1007795629282

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