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Product differentiation with consumer arbitrage

Listed author(s):
  • Aguirre, Inaki
  • Paz Espinosa, Maria

We analyze the consequences of consumers behavior concerning personal arbitrage in a spatial discrimination context where firms know the consumers distribution but cannot distinguish them by location. The firms' equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties of products but rather to purchase more standard varieties. This behavior may explain a decrease in observed market diversity: the demanded varieties tend to agglomerate around the center of the market. We also deal with efficiency in the presence of personal arbitrage and show that it is efficient that the cost of adapting the product to the consumers needs be shared through arbitrage, but oligopoly gives rise to an inefficient level of personal arbitrage.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 22 (2004)
Issue (Month): 2 (February)
Pages: 219-239

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Handle: RePEc:eee:indorg:v:22:y:2004:i:2:p:219-239
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  16. repec:ulb:ulbeco:2013/1759 is not listed on IDEAS
  17. Aguirre, Inaki & Espinosa, Maria Paz & Macho-Stadler, Ines, 1998. "Strategic entry deterrence through spatial price discrimination," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 297-314, May.
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