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The role of an intermediate market within the barbell model

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  • Wen-Chung Guo
  • Fu-Chuan Lai

Abstract

This paper extends Hwang and Mai (Am Econ Rev 80:567–575, 1990 ) with an intermediate market to discuss the spatial pricing and social welfare. It is shown that the monopoly will always locate at this intermediate market under discriminatory pricing. Under simple mill pricing, the intermediate market will be the optimal location if the slope of the demand function at this market is large enough. Moreover, in contrast to Hwang and Mai (Am Econ Rev 80:567–575, 1990 ), the total outputs under discriminatory pricing may be either greater or less than those under simple mill pricing, and social welfare under simple mill pricing is lower (higher) than that under discriminatory pricing if the transport rate is large (low) enough. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Wen-Chung Guo & Fu-Chuan Lai, 2013. "The role of an intermediate market within the barbell model," Letters in Spatial and Resource Sciences, Springer, vol. 6(3), pages 151-161, November.
    • Handle: RePEc:spr:lsprsc:v:6:y:2013:i:3:p:151-161
    DOI: 10.1007/s12076-013-0094-7
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    References listed on IDEAS

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    1. Stefano Colombo, 2011. "Taxation and predatory prices in a spatial model," Papers in Regional Science, Wiley Blackwell, vol. 90(3), pages 603-612, August.
    2. Liang, Wen-Jung & Hwang, Hong & Mai, Chao-Cheng, 2006. "Spatial discrimination: Bertrand vs. Cournot with asymmetric demands," Regional Science and Urban Economics, Elsevier, vol. 36(6), pages 790-802, November.
    3. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    4. Kai Andree, 2013. "Collusion in Spatially Separated Markets with Quantity Competition," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 309-318, September.
    5. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
    6. Martin J. Beckmann, 1976. "Spatial Price Policies Revisited," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 619-630, Autumn.
    7. Hong Hwang & Chao‐Cheng Mai & Hiroshi Ohta, 2010. "Who Benefits From Pricing Regulations When Economic Space Matters?," The Japanese Economic Review, Japanese Economic Association, vol. 61(2), pages 218-233, June.
    8. Greenhut, M L & Ohta, H, 1972. "Monopoly Output Under Alternative Spatial Pricing Techniques," American Economic Review, American Economic Association, vol. 62(4), pages 705-713, September.
    9. Holahan, William L, 1975. "The Welfare Effects of Spatial Price Discrimination," American Economic Review, American Economic Association, vol. 65(3), pages 498-503, June.
    10. Stefano Colombo, 2013. "Predation in Space," Spatial Economic Analysis, Taylor & Francis Journals, vol. 8(1), pages 9-22, March.
    11. Hwang, Hong & Mai, Chao-cheng, 1990. "Effects of Spatial Price Discrimination on Output, Welfare, and Location," American Economic Review, American Economic Association, vol. 80(3), pages 567-575, June.
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    Cited by:

    1. Corrado Benassi, 2014. "Dispersion equilibria in spatial Cournot competition," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(2), pages 611-625, March.
    2. Stefano Colombo, 2016. "A Model of Three Cities," International Regional Science Review, , vol. 39(4), pages 386-416, October.

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    More about this item

    Keywords

    Barbell model; Discriminatory; Mill pricing; R30; L12;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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