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Firms price discriminate based on suppliers’ relative distances to competitors

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Abstract

We derive a theoretical model predicting that firms should mark down input prices more the longer distance a supplier has to a competitor’s plant relative to their own plant. We test this prediction using contract-level data on prices of waste burned at energy plants. To the best of our knowledge, we are the first to study whether firms price discriminate based on relative distance to the closest competitor. The empirical results confirm that longer relative distances to competitors’ plants lead to lower prices and show no evidence of additional effects of the distance to the chosen plant.

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  • Granlund, David & Meens-Eriksson, Sef, 2022. "Firms price discriminate based on suppliers’ relative distances to competitors," Umeå Economic Studies 1006, Umeå University, Department of Economics, revised 05 Feb 2024.
    • Handle: RePEc:hhs:umnees:1006
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    More about this item

    Keywords

    auction; market power; oligopsony; price discrimination; procurement; spatial competition; transport cost; waste incineration;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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