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On the Strategic Choice of Spatial Price Policy

  • Thisse, Jacques-Francois
  • Vives, Xavier

The strategic incentives, with respect to the choice of price policy in spatial competition, are analyzed in a duopoly model. Price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage. Nevertheless, profits may be h igher with uniform pricing. The authors' models are applied to analyz e some common business practices that arise in geographical pricing, like the basing point system, and in the pricing of varieties or opti ons from a base product in a product-differentiation context. Copyright 1988 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 1 (March)
Pages: 122-37

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Handle: RePEc:aea:aecrev:v:78:y:1988:i:1:p:122-37
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