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Sequential entry and merger in spatial price discrimination

  • John Heywood

    ()

  • Guangliang Ye

    ()

This paper newly introduces sequential entry into previous models of spatial price discrimination that examine location choices made in anticipation of a potential merger. While merger with simultaneous entry routinely reduces social welfare, we show that mergers frequently improve welfare. The extent of welfare improving mergers varies inversely with the timing advantage of an excluded rival. When the rival locates alone in the first stage, the merger harms welfare. When the rival locates alone in the last stage, the merger improves welfare. These results hold true when allocating three firms across either two or three location stages. Thus, allowing staged entry dramatically alters and often reverses the conclusion previously drawn on the basis of simultaneous entry. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s00168-012-0516-2
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Article provided by Springer in its journal The Annals of Regional Science.

Volume (Year): 50 (2013)
Issue (Month): 3 (June)
Pages: 841-859

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Handle: RePEc:spr:anresc:v:50:y:2013:i:3:p:841-859
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  1. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  2. Posada, Pedro & Straume, Odd Rune, 2002. "Merger, partial collusion and relocation," Working Papers in Economics 23/02, University of Bergen, Department of Economics.
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  4. Gupta, Barnali, 1992. "Sequential entry and deterrence with competitive spatial price discrimination," Economics Letters, Elsevier, vol. 38(4), pages 487-490, April.
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  7. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
  8. Greenhut, Melvin L, 1981. "Spatial Pricing in the United States, West Germany and Japan," Economica, London School of Economics and Political Science, vol. 48(189), pages 79-86, February.
  9. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
  10. John S. Heywood & Guangliang Ye, 2009. "Mixed Oligopoly, Sequential Entry, And Spatial Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 589-597, 07.
  11. James D. Reitzes & David T. Levy, 1995. "Price Discrimination and Mergers," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 427-36, May.
  12. R. Rothschild & John S. Heywood & Kristen Monaco, 2007. "Strategic Contracts Versus Multiple Plants: Location Under Sequential Entry," Manchester School, University of Manchester, vol. 75(2), pages 237-257, 03.
  13. Larry D. Qiu & Wen Zhou, 2007. "Merger waves: a model of endogenous mergers," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 214-226, 03.
  14. Kristen Monaco & John S. Heywood & R. Rothschild, 2004. "Delivered Pricing and Merger with Demand Constraints," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 49-59, January.
  15. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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