Spatial Price Equilibrium In Interdependent Markets: Price And Sales Configurations

Sheppard et al (1992) introduced a spatial interdependent markets model for a single commodity and derived existence and stability properties of sales and prices at equilibrium under two price adjustment mechanisms and two profit†seeking scenarios. This paper explores the spatial properties of the sales and price configurations. Equilibrium prices are given two interpretations that relate to two different aspects of inter†market consumer flows for the purpose of purchasing the commodity. Subsequently the paper describes how sales and prices can be separated into an element reflecting locational advantage which arises from the overlapping of juxtaposed consumer choice sets of different sizes and an element reflecting market interaction which arises because of consumer sensitivity to price differences between sites within their choice set. Configurations of sales and prices are generated explicitly for certain spatial systems. The two profit objectives lead to strikingly different spatial price distributions. Equilibrium prices and sales under both profit objectives appear to be quite closely tied to the prices and sales that are generated by the choice set structure (locational advantage) after smoothing by a local scale spatial operator. The relationships between prices and sales due to locational advantage and prices and sales at equilibrium are analyzed.