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Spatial Monopoly with Product Differentiation

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  • Shin‐kun Peng

Abstract

Most theoretical work on the behavior of spatial monopoly focuses on the single‐product case, while, in reality, a firm usually produces (or sells) many differentiated products. In this paper, 1 introduce a new model of spatial monopoly with a multiple‐product firm where the firm chooses both the measure of product varieties and the price of each variety to maximize its profit. I also examine the monopolist's optimal decision and its economic effects on the spatial economy with a fixed and variable market fringe, respectively. For a class of preferences to product differentiation, I find that both the quantities produced and the consumer surpluses vary across three different spatial pricing policies. This finding is in contrast to the literature on a single‐product spatial monopoly where those results are invariant across different pricing policies.

Suggested Citation

  • Shin‐kun Peng, 2004. "Spatial Monopoly with Product Differentiation," Southern Economic Journal, John Wiley & Sons, vol. 70(3), pages 646-660, January.
    • Handle: RePEc:wly:soecon:v:70:y:2004:i:3:p:646-660
    DOI: 10.1002/j.2325-8012.2004.tb00594.x
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