Inaki Aguirre () (Departamento de Fundamentos del Analisis Economico, Universidad del Pais Vasco, Spain) Ana M. Martin () (Departamento de Econometria y Estadistica (Economia Aplicada III), Universidad del Pais Vasco, Spain)
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In this paper, whe show that the strategic choice of spatial price policy under duopoly crucially depends on the rules of price competition. Thisse and Vives (1988) show that spatial price discrimination is a dominant strategy when the mill pricing firm is the leader and the discriminatory firm is the follower. When the leader-follower roles are reversed we find that equilibrium pricing policies depend on the consumer's reservation value. The pricing policy game has two equilibria in pure strategies, either both firms price uniformly (f.o.b.) or both firms price discriminate, when the reservation value is low. For intermediate levels of the reservation value, price discrimination is a dominant strategy and the pricing policy game is similar to a Prisoner's Dilemma. When the consumer reservation value is large enough we obtain asymmetric equilibria in which one firm prices according to f.o.b. and the other price discriminates. We also analyze the case of simultaneous price competition and find a mixed strategies equilibrium for the price competition subgame such that the pricing policy game has two equilibria in pure strategies, either both firms price uniformly or both firms price discriminate.
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Paper provided by Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) in its series BILTOKI with number
200104.
Order Information: Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain Email:
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