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Spatial price discrimination and mergers with convex production costs

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  • John Heywood
  • Zheng Wang

Abstract

We examine duopolists that have convex production costs and locate under spatial price discrimination in anticipation of a merger. We show that the merger frequently results in locations that reduce social cost. This contrasts with the well-known result that with linear production costs the merger distorts locations to increase social cost. While mergers in our model can generate location asymmetry and so higher production costs, the locations frequently reduce transport cost sufficiently that the sum of transport and production costs is reduced. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • John Heywood & Zheng Wang, 2014. "Spatial price discrimination and mergers with convex production costs," Letters in Spatial and Resource Sciences, Springer, vol. 7(1), pages 1-8, March.
    • Handle: RePEc:spr:lsprsc:v:7:y:2014:i:1:p:1-8
    DOI: 10.1007/s12076-013-0096-5
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    References listed on IDEAS

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    1. McAfee, R Preston & Simons, Joseph J & Williams, Michael A, 1992. "Horizontal Mergers in Spatially Differentiated Noncooperative Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 349-358, December.
    2. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, vol. 78(1), pages 122-137, March.
    3. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    4. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
    5. James D. Reitzes & David T. Levy, 1995. "Price Discrimination and Mergers," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 427-436, May.
    6. John Heywood & Guangliang Ye, 2013. "Sequential entry and merger in spatial price discrimination," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(3), pages 841-859, June.
    7. Hurter, Arthur Jr & Lederer, Phillip J., 1985. "Spatial duopoly with discriminatory pricing," Regional Science and Urban Economics, Elsevier, vol. 15(4), pages 541-553, November.
    8. Gupta, Barnali, 1994. "Competitive spatial price discrimination with strictly convex production costs," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 265-272, April.
    9. Cesaltina Pires, 2009. "Location choice under delivered pricing: a reinterpretation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 199-213, March.
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    Cited by:

    1. Kai Andree & John S. Heywood & Mike Schwan & Zheng Wang, 2018. "A Spatial Model Of Cartel Stability: The Influence Of Production Cost Convexity," Bulletin of Economic Research, Wiley Blackwell, vol. 70(3), pages 298-311, July.
    2. Marten Graubner, 2020. "Spatial monopoly pricing under non-constant marginal costs," Letters in Spatial and Resource Sciences, Springer, vol. 13(1), pages 81-97, April.
    3. Gabriel Courey, 2018. "Spatial price discrimination, sequential location and convex production costs," Letters in Spatial and Resource Sciences, Springer, vol. 11(2), pages 223-232, July.

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    More about this item

    Keywords

    Spatial price discrimination; Convex costs; Merger; L13; L22;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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