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Delivered Pricing, FOB Pricing, and Collusion in Spatial Markets

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  • Maria Paz Espinosa

Abstract

This article examines price discrimination and collusion in spatial markets. The problem is analyzed in the context of a repeated duopoly game. I conclude that the prevailing pricing systems depend on the structural elements of the market. Delivered pricing systems emerge in equilibrium in highly monopolistic and highly competitive industries, while FOB is used in intermediate market structures. The fact driving this result is that delivered pricing policies allow spatial price discrimination that facilitates collusion, but at the same time they have a very competitive feature: they are the only pricing rules that could be sustained in a very competitive market structure.

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Bibliographic Info

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

Volume (Year): 23 (1992)
Issue (Month): 1 (Spring)
Pages: 64-85

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Handle: RePEc:rje:randje:v:23:y:1992:i:spring:p:64-85

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Cited by:
  1. Miklós-Thal, Jeanine, 2008. "Delivered pricing and the impact of spatial differentiation on cartel stability," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(6), pages 1365-1380, November.
  2. Stefano Colombo, 2009. "Pricing Policy and Partial Collusion," DISCE - Quaderni dell'Istituto di Economia e Finanza, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) ief0090, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  3. Stefano Colombo, 2011. "Spatially asymmetric firms and the sustainability of a price agreement," Economics Bulletin, AccessEcon, vol. 31(3), pages 2414-2421.
  4. Iwan Bos & Maarten Pieter Schinkel, 2009. "Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing," Tinbergen Institute Discussion Papers, Tinbergen Institute 09-007/1, Tinbergen Institute.
  5. Stefano Colombo, 2012. "Colluding on a Price Increase," Journal of Industry, Competition and Trade, Springer, Springer, vol. 12(4), pages 365-371, December.
  6. Colombo, Stefano, 2012. "An indifference result concerning collusion in spatial frameworks," Research in Economics, Elsevier, Elsevier, vol. 66(1), pages 18-21.
  7. Kumar, Ashutosh & Saha, Bibhas, 2008. "Spatial competition in a mixed duopoly with one partially nationalized firm," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 326-341, June.
  8. Graubner, Marten & Balmann, Alfons & Sexton, Richard J., 2011. "Spatial Pricing and the Location of Processors in Agricultural Markets," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 114601, European Association of Agricultural Economists.
  9. P. Garella, 1997. "Price Discrimination and the Location Choice of a Durable Goods Monopoly," Working Papers, Dipartimento Scienze Economiche, Universita' di Bologna 282, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Zhang, Mingxia & Sexton, Richard J., 1999. "Fob Or Uniform Delivered Pricing: Strategic Choice And Welfare Effects," 1999 Annual meeting, August 8-11, Nashville, TN, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 21667, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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