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Sequential entry and merger in spatial price discrimination

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  • John Heywood

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  • Guangliang Ye

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Abstract

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

Suggested Citation

  • John Heywood & Guangliang Ye, 2013. "Sequential entry and merger in spatial price discrimination," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(3), pages 841-859, June.
  • Handle: RePEc:spr:anresc:v:50:y:2013:i:3:p:841-859 DOI: 10.1007/s00168-012-0516-2
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    References listed on IDEAS

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    1. John S. Heywood & Kristen Monaco & R. Rothschild, 2001. "Spatial Price Discrimination and Merger: The N-Firm Case," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 672-684, January.
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, pages 107-126.
    3. 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, March.
    4. McAfee, R Preston & Simons, Joseph J & Williams, Michael A, 1992. "Horizontal Mergers in Spatially Differentiated Noncooperative Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 349-358, December.
    5. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
    6. Pedro Posada & Odd Rune Straume, 2004. "Merger, Partial Collusion and Relocation," Journal of Economics, Springer, pages 243-265.
    7. 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.
    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. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    10. Gupta, Barnali, 1992. "Sequential entry and deterrence with competitive spatial price discrimination," Economics Letters, Elsevier, vol. 38(4), pages 487-490, April.
    11. 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.
    12. 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, July.
    13. James D. Reitzes & David T. Levy, 1995. "Price Discrimination and Mergers," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 427-436, May.
    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. 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, March.
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    Cited by:

    1. John Heywood & Zheng Wang, 2014. "Spatial price discrimination and mergers with convex production costs," Letters in Spatial and Resource Sciences, Springer, pages 1-8.

    More about this item

    Keywords

    L13; L41;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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