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Delivered Pricing and Merger with Demand Constraints

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Author Info

  • Kristen Monaco
  • John S. Heywood
  • R. Rothschild

Abstract

The consequences of a demand constraint (low willingness to pay) are examined in a model of merger by spatial price discriminators. The imposition of a demand constraint reduces the extent of inefficiency associated with merger and also eliminates the resolution of the merger paradox obtained in the earlier, unconstrained case. Moreover, with the introduction of a demand constraint, a tax on transport cost can actually improve efficiency, which is never the case in the absence of the demand constraint. Indeed, the optimal tax often eliminates all spatial price competition by creating local monopolies. (JEL D43, L41) Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbh043
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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 42 (2004)
Issue (Month): 1 (January)
Pages: 49-59

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Handle: RePEc:oup:ecinqu:v:42:y:2004:i:1:p:49-59

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Cited by:
  1. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, vol. 66(1), pages 22-32.
  2. Jen-Te Yao & Fu-Chuan Lai, 2006. "A fiscal regime solving the incentive inconsistency problem," The Annals of Regional Science, Springer, vol. 40(3), pages 603-619, August.
  3. John Heywood & Guangliang Ye, 2013. "Sequential entry and merger in spatial price discrimination," The Annals of Regional Science, Springer, vol. 50(3), pages 841-859, June.

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