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The impact of transportation asymmetry on the choice of a spatial price policy

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  • Jen-Te Yao

    (Fu Jen Catholic University)

Abstract

This paper studies the strategic choice of a spatial price policy between mill pricing and uniform-delivered pricing (UDP) under transportation asymmetry. Mill pricing in the model emerges as an equilibrium price policy, but it contains different types of strategic interaction, depending on the level of discrepancy between two firms’ transportation rates. If the transportation rate discrepancy is not too great, then mill pricing is a dominant strategy. When the discrepancy is large enough, mill pricing is viewed as a M-matching strategy, whereby the low-transportation-cost firm prefers matching the rival’s strategy, but the high-transportation-cost firm does not do so. There is no “Prisoner’s Dilemma” like the argument that Thisse and Vives (Am Econ Rev 78(1):122–137, 1988, AER) proposes, and there is no robustness for firms to choose a UDP policy like Kats and Thisse (in: Ohta and Thisse (eds) Does economic space matter? St Martin’s, New York, 1993) do. Our study matches the current trend of technology advancement in transportation.

Suggested Citation

  • Jen-Te Yao, 2019. "The impact of transportation asymmetry on the choice of a spatial price policy," Asia-Pacific Journal of Regional Science, Springer, vol. 3(3), pages 793-811, October.
    • Handle: RePEc:spr:apjors:v:3:y:2019:i:3:d:10.1007_s41685-019-00110-1
    DOI: 10.1007/s41685-019-00110-1
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    References listed on IDEAS

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    1. Amoz Kats & Jacques-François Thisse, 1993. "Spatial Oligopolies with Uniform Delivered Pricing," Palgrave Macmillan Books, in: Hiroshi Ohta & Jacques-François Thisse (ed.), Does Economic Space Matter?, chapter 14, pages 274-302, Palgrave Macmillan.
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    3. Schuler, Richard E & Hobbs, Benjamin F, 1982. "Spatial Price Duopoly under Uniform Delivered Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 175-187, September.
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    6. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
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    8. Anderson, Simon P & de Palma, Andre & Thisse, Jacques-Francois, 1989. "Spatial Price Policies Reconsidered," Journal of Industrial Economics, Wiley Blackwell, vol. 38(1), pages 1-18, September.
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    Cited by:

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    More about this item

    Keywords

    Price policy; Mill pricing; Uniform-delivered pricing;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy

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