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The role of an intermediate market within the barbell model

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  • Wen-Chung Guo

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  • Fu-Chuan Lai

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    Abstract

    This paper extends Hwang and Mai (Am Econ Rev 80:567–575, 1990 ) with an intermediate market to discuss the spatial pricing and social welfare. It is shown that the monopoly will always locate at this intermediate market under discriminatory pricing. Under simple mill pricing, the intermediate market will be the optimal location if the slope of the demand function at this market is large enough. Moreover, in contrast to Hwang and Mai (Am Econ Rev 80:567–575, 1990 ), the total outputs under discriminatory pricing may be either greater or less than those under simple mill pricing, and social welfare under simple mill pricing is lower (higher) than that under discriminatory pricing if the transport rate is large (low) enough. Copyright Springer-Verlag Berlin Heidelberg 2013

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    File URL: http://hdl.handle.net/10.1007/s12076-013-0094-7
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    Bibliographic Info

    Article provided by Springer in its journal Letters in Spatial and Resource Sciences.

    Volume (Year): 6 (2013)
    Issue (Month): 3 (November)
    Pages: 151-161

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    Handle: RePEc:spr:lsprsc:v:6:y:2013:i:3:p:151-161

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    Web page: http://www.springer.com/economics/journal/12076

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    Related research

    Keywords: Barbell model; Discriminatory; Mill pricing; R30; L12;

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    1. Hong Hwang & Chao-Cheng Mai & Hiroshi Ohta, 2010. "Who Benefits From Pricing Regulations When Economic Space Matters?," The Japanese Economic Review, Japanese Economic Association, vol. 61(2), pages 218-233.
    2. Martin J. Beckmann, 1976. "Spatial Price Policies Revisited," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 619-630, Autumn.
    3. Stefano Colombo, 2011. "Taxation and predatory prices in a spatial model," Papers in Regional Science, Wiley Blackwell, vol. 90(3), pages 603-612, 08.
    4. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-47, March.
    5. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
    6. Greenhut, M L & Ohta, H, 1972. "Monopoly Output Under Alternative Spatial Pricing Techniques," American Economic Review, American Economic Association, vol. 62(4), pages 705-13, September.
    7. Holahan, William L, 1975. "The Welfare Effects of Spatial Price Discrimination," American Economic Review, American Economic Association, vol. 65(3), pages 498-503, June.
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