Product Variety and Welfare under Discriminatory and Mill Pricing Policies
We re-examine the economic justification for the regulation of firms' spatial price policies. Existing analysis, by treating market structure as exogenous, loses an important trade-off. Discriminatory pricing is more competitive between incumbents but acts as a strong deterrent against entry. Product variety is determined by the degree of spatial contestability of the market (the ability of entrants to make binding location commitments) and by whether firms can price discriminate. The entry deterring effect of discriminatory pricing is dominant whatever the degree of spatial contestability or the nature of demand but welfare effects depend upon the degree of spatial contestability. The lower the degree of spatial contestability, the more effective is discriminatory pricing at limiting entry and the more likely is it that mill pricing is socially desirable.
|Date of creation:||Jun 1994|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:972. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.