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Spatial price discrimination with a ‘must-have’ component

Author

Listed:
  • Heywood, John S.
  • Luo, Qiming
  • Ye, Guangliang

Abstract

An upstream firm provides a valuable component with either an exclusive or nonexclusive contract to two downstream firms on a horizontal market. The downstream firms engage in either uniform pricing or spatial price discrimination. The component provider is more likely to sign an exclusive contract under discriminatory pricing. Discriminatory pricing generates higher welfare when both pricing methods result in exclusive contracts and generates the same welfare when both methods result in nonexclusive contracts. Importantly it generates lower welfare when discriminatory pricing results in exclusive contracts and uniform pricing results in nonexclusive contracts. These results prove robust to a variety of model variations.

Suggested Citation

  • Heywood, John S. & Luo, Qiming & Ye, Guangliang, 2023. "Spatial price discrimination with a ‘must-have’ component," Regional Science and Urban Economics, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:regeco:v:103:y:2023:i:c:s0166046223000935
    DOI: 10.1016/j.regsciurbeco.2023.103958
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    References listed on IDEAS

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    More about this item

    Keywords

    Uniform pricing; Spatial price discrimination; Component provider; Exclusive contract;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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