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FOB or Uniform Delivered Prices: Strategic Choice and Welfare Effects

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  • Zhang, Mingxia
  • Sexton, Richard J

Abstract

In spatial markets firms typically use either FOB (mill) or uniform delivered (UD) pricing. What competitive factors motivate this choice and what are the welfare implications of the choice? We study these questions in a duopsony market, where farmers with unit elastic supply curves sell to processing firms. In results that differ considerably from prior work, we show that the equilibrium price policy depends upon the extent of competition in the market, with FOB pricing emerging under very competitive structures and UD pricing emerging under less competition. Mixed FOB-UD pricing may also emerge in equilibrium. In most cases welfare is higher under UD than FOB pricing. Copyright 2001 by Blackwell Publishing Ltd

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  • Zhang, Mingxia & Sexton, Richard J, 2001. "FOB or Uniform Delivered Prices: Strategic Choice and Welfare Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 197-221, June.
  • Handle: RePEc:bla:jindec:v:49:y:2001:i:2:p:197-221
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    References listed on IDEAS

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    Cited by:

    1. Sesmero, Juan P. & Balagtas, Joseph V., 2015. "Capacity constraint and spatial competition in agricultural markets," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205790, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    2. Fousekis, Panos, 2011. "Spatial Price Competition Between Cooperatives Under Hotelling – Smithies Conjectures," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 12(2), June.
    3. Gunther Maier, 2009. "Spatial prices, search behavior and location," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 27-48, March.
    4. Sesmero, Juan P. & Balagtas, Joseph V. & Pratt, Michelle, 2015. "The Economics of Spatial Competition for Corn Stover," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(3), August.
    5. Graubner, Marten & Balmann, Alfons, 2012. "Spatial Pricing on Land Rental Markets," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 125349, Agricultural and Applied Economics Association.
    6. Blank, Steven C. & Saitone, Tina L. & Sexton, Richard J., 2016. "Calf and Yearling Prices in the Western United States: Spatial, Quality, and Temporal Factors in Satellite Video Auctions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), September.
    7. Sesmero, Juan & Balagtas, Joseph, 2016. "Spatial Competition and Welfare Ranking of Biofuel Policies," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236101, Agricultural and Applied Economics Association.
    8. Zavelberg, Yvonne & Storm, Hugo, 2016. "Pricing behaviour of cooperatives and investor-owned dairies under spatial competition," Discussion Papers 250230, University of Bonn, Institute for Food and Resource Economics.
    9. Carriquiry, Miguel A. & Babcock, Bruce A., 2005. "The Impact of Transportation Costs on Spatial Competition of Grain Buyers: An Iowa Case Study," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 44(2).
    10. 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.
    11. Zavelberg, Yvonne & Storm, Hugo, 2015. "Pricing behaviour of cooperatives and investor-owned dairies in a spatial market setting," 150th Seminar, October 22-23, 2015, Edinburgh, Scotland 212681, European Association of Agricultural Economists.

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