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Location and Spatial Pricing Theory with Nonconvex Transportation Cost Schedules

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  • Konrad Stahl
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    Abstract

    A model of consumer behavior is developed in which, owing to a nonconvexity in the transportation cost of obtaining the desired commodity bundle, consumers are attracted to marketplaces offering a larger variety of commodities. Impacts on marketeers' equilibrium locations and pricing strategies are studied within a simple model. Agglomeration economies naturally emerge and lead sellers to associate spatially and charge higher noncooperative equilibrium prices than under locational monopoly, despite possibly increased competition. In general, equilibrium prices at one marketplace depend on the structure of the commodity bundle offered there. Differences in that bundle across marketplaces lead to a nondegenerate equilibrium price distribution for the same commodity, even if the agents involved are perfectly informed and totally undifferentiated a priori. There finally emerge welfare comparisons between equilibria involving competitive one-product sellers and those involving local monopolists.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 13 (1982)
    Issue (Month): 2 (Autumn)
    Pages: 575-582

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    Handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:575-582

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    Cited by:
    1. Caprice, Stéphane & von Schlippenbach, Vanessa, 2013. "One-stop shopping as a cause of slotting fees: A rent-shifting mechanism," DICE Discussion Papers 97, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. von Schlippenbach, Vanessa & Wey, Christian, 2011. "One-stop shopping behavior, buyer power, and upstream merger incentives," DICE Discussion Papers 27, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization 0505009, EconWPA.
    4. Sloev, Igor & Thisse, Jacques-François & Ushchev, Philip, 2013. "Do we go shopping downtown or in the `burbs? Why not both?," CEPR Discussion Papers 9604, C.E.P.R. Discussion Papers.
    5. John Clapp & Katsiaryna Bardos & Tingyu Zhou, 2014. "Expansions and Contractions of Major US Shopping Centers," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 16-56, January.
    6. Bertuzzi, Giorgia & Lambertini, Luca, 2010. "Existence of equilibrium in a differential game of spatial competition with advertising," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 155-160, May.
    7. Borla, Stefania, 2012. "Spatial competition and merging incentives when firms produce complements," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 221-229.
    8. Henkel, Joachim & Stahl, Konrad & Walz, Uwe, 2000. "Coalition Building in a Spatial Economy," Journal of Urban Economics, Elsevier, vol. 47(1), pages 136-163, January.
    9. Liang, Wen-Jung & Mai, Chao-Cheng, 2006. "Validity of the principle of minimum differentiation under vertical subcontracting," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 373-384, May.
    10. Non, Marielle, 2010. "Isolation or joining a mall? On the location choice of competing shops," MPRA Paper 20044, University Library of Munich, Germany.
    11. Madden, Paul, 2006. "Geographical separation of oligopolists can be very competitive," European Economic Review, Elsevier, vol. 50(7), pages 1709-1728, October.

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