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Location and Spatial Pricing Theory with Nonconvex Transportation Cost Schedules

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  • Konrad Stahl

Abstract

A model of consumer behavior is developed in which, owing to a nonconvexity in the transportation cost of obtaining the desired commodity bundle, consumers are attracted to marketplaces offering a larger variety of commodities. Impacts on marketeers' equilibrium locations and pricing strategies are studied within a simple model. Agglomeration economies naturally emerge and lead sellers to associate spatially and charge higher noncooperative equilibrium prices than under locational monopoly, despite possibly increased competition. In general, equilibrium prices at one marketplace depend on the structure of the commodity bundle offered there. Differences in that bundle across marketplaces lead to a nondegenerate equilibrium price distribution for the same commodity, even if the agents involved are perfectly informed and totally undifferentiated a priori. There finally emerge welfare comparisons between equilibria involving competitive one-product sellers and those involving local monopolists.

Suggested Citation

  • Konrad Stahl, 1982. "Location and Spatial Pricing Theory with Nonconvex Transportation Cost Schedules," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 575-582, Autumn.
  • Handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:575-582
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    Cited by:

    1. Armstrong, Mark, 2016. "Ordered Consumer Search," MPRA Paper 72194, University Library of Munich, Germany.
    2. Bertuzzi, Giorgia & Lambertini, Luca, 2010. "Existence of equilibrium in a differential game of spatial competition with advertising," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 155-160, May.
    3. Henkel, Joachim & Stahl, Konrad & Walz, Uwe, 2000. "Coalition Building in a Spatial Economy," Journal of Urban Economics, Elsevier, vol. 47(1), pages 136-163, January.
    4. Wen-Jung Liang & Kuang-Cheng Wang & Hong-Ren Din, 2014. "Spatial Competition and Flexible Manufacturing with Spatially Discriminatory Pricing," ERSA conference papers ersa14p234, European Regional Science Association.
    5. Borla, Stefania, 2012. "Spatial competition and merging incentives when firms produce complements," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 221-229.
    6. Sloev, Igor & Thisse, Jacques-François & Ushchev, Philip, 2013. "Do we go shopping downtown or in the `burbs? Why not both?," CEPR Discussion Papers 9604, C.E.P.R. Discussion Papers.
    7. Non, Marielle, 2010. "Isolation or joining a mall? On the location choice of competing shops," MPRA Paper 20044, University Library of Munich, Germany.
    8. Ushchev Ph. & Sloev I. & Thisse J.-F., 2014. "Competition between Small Shops and a Large Shopping Center," Journal of the New Economic Association, New Economic Association, vol. 23(3), pages 12-37.
    9. Madden, Paul, 2006. "Geographical separation of oligopolists can be very competitive," European Economic Review, Elsevier, vol. 50(7), pages 1709-1728, October.
    10. Ralph Braid, 2014. "The socially optimal and equilibrium locations of two stores or libraries with consumer search," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(1), pages 123-136, August.
    11. John Clapp & Katsiaryna Bardos & Tingyu Zhou, 2014. "Expansions and Contractions of Major US Shopping Centers," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 16-56, January.
    12. P Madden, 2004. "Geographical Separation of Oligopolists Can Be Very Competitive," The School of Economics Discussion Paper Series 0405, Economics, The University of Manchester.
    13. Norbert Schulz & Konrad Stahl, 1985. "Localisation des oligopoles et marchés du travail locaux," Revue Économique, Programme National Persée, vol. 36(1), pages 103-134.
    14. Heimeshoff, Ulrich & Klein, Gordon J., 2013. "Bargaining power and local heroes," DICE Discussion Papers 87, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    15. Baye, Irina & von Schlippenbach, Vanessa & Wey, Christian, 2017. "One-stop shopping behavior, buyer power, and upstream merger incentives," DICE Discussion Papers 27, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    16. Ching-Chih Tseng & Wen-Jung Liang & Kuang-Cheng Andy Wang, 2010. "Spatial agglomeration with vertical differentiation," Papers in Regional Science, Wiley Blackwell, vol. 89(4), pages 841-858, November.
    17. Liang, Wen-Jung & Mai, Chao-Cheng, 2006. "Validity of the principle of minimum differentiation under vertical subcontracting," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 373-384, May.
    18. Stéphane Caprice & Vanessa Schlippenbach, 2013. "One-Stop Shopping as a Cause of Slotting Fees: A Rent-Shifting Mechanism," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 468-487, September.
    19. Ushchev, Philip & Sloev, Igor & Thisse, Jacques-François, 2015. "Do we go shopping downtown or in the ‘burbs?," Journal of Urban Economics, Elsevier, vol. 85(C), pages 1-15.
    20. Zhou, Tingyu & Clapp, John M., 2015. "The location of new anchor stores within metropolitan areas," Regional Science and Urban Economics, Elsevier, vol. 50(C), pages 87-107.
    21. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    22. Rhodes, Andrew & Zhou, Jidong, 2016. "Consumer Search and Retail Market Structure," MPRA Paper 69484, University Library of Munich, Germany.
    23. Burkey, Mark L., 2010. "Geographic Access and Demand in the Market for Alcohol," The Review of Regional Studies, Southern Regional Science Association, vol. 40(2), pages 159-179.

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