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The unidirectional Hotelling model with spatial price discrimination

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  • Stefano Colombo

    ()
    (Catholic University of Milan)

Abstract

The unidirectional Hotelling model where consumers can buy only from firms located on their right (left) is extended to allow for price discriminating firms and a general class of transportation costs. In a two-stage location-price game one firm locates at 1/2 and the other locates at 1 (0). We also study collusion in an infinitely repeated game. The maximum collusive profits sustainable in equilibrium monotonically increase (decrease) with the location of the firm located at the right (left), while initially increase and then decrease with the location of the firm located at the left (right). A higher reservation price of consumers makes perfect collusion less sustainable in equilibrium, but allows firms to agree on higher (albeit imperfect) collusive profits.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P291.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 4 ()
Pages: 3031-3040

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Handle: RePEc:ebl:ecbull:eb-09-00522

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Keywords: Unidirectional Hotelling model; Price discrimination; Location-price game; Tacit collusion;

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References

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  1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
  2. Stefano Colombo, 2009. "Sustainability of collusion with imperfect price discrimination and inelastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 1687-1694.
  3. Chang, Myong-Hun, 1992. "Intertemporal Product Choice and Its Effects on Collusive Firm Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 773-93, November.
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  5. James W. Friedman & Jacques-Francois Thisse, 1993. "Partial Collusion Fosters Minimum Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 631-645, Winter.
  6. HAMILTON, Jonathan & THISSE, Jacques-François, . "Duopoly with spatial and quantity-dependent price discrimination," CORE Discussion Papers RP -998, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Hackner, Jonas, 1996. "Optimal symmetric punishments in a Bertrand differentiated products duopoly," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 611-630, July.
  8. Chang, Myong-Hun, 1991. "The effects of product differentiation on collusive pricing," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 453-469, September.
  9. Toshihiro Matsumura & Noriaki Matsushima, 2005. "Cartel Stability in a Delivered Pricing Oligopoly," Journal of Economics, Springer, vol. 86(3), pages 259-292, December.
  10. Liu, Qihong & Serfes, Konstantinos, 2007. "Market segmentation and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 355-378, April.
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  13. HAMILTON, Jonathan H. & THISSE, Jacques-François & WESKAMP, Anita, . "Spatial discrimination. Bertrand vs. Cournot in a model of location choice," CORE Discussion Papers RP -846, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  16. Hackner, Jonas, 1994. "Collusive pricing in markets for vertically differentiated products," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 155-177, June.
  17. Miklós-Thal, Jeanine, 2008. "Delivered pricing and the impact of spatial differentiation on cartel stability," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1365-1380, November.
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  19. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
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Citations

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Cited by:
  1. Kai Andree, 2011. "Product differentiation and spatial agglomeration in a unidirectional Cournot model," Letters in Spatial and Resource Sciences, Springer, vol. 4(3), pages 167-172, October.
  2. Takeshi Ebina & Daisuke Shimizu, 2012. "A unidirectional Hotelling model revisited," Economics Bulletin, AccessEcon, vol. 32(4), pages 2870-2875.
  3. Stefano Colombo, 2013. "Spatial Cournot competition with non-extreme directional constraints," The Annals of Regional Science, Springer, vol. 51(3), pages 761-774, December.

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