On the strategic choice of spatial price policy: the role of the pricing game rules
In this paper, whe show that the strategic choice of spatial price policy under duopoly crucially depends on the rules of price competition. Thisse and Vives (1988) show that spatial price discrimination is a dominant strategy when the mill pricing firm is the leader and the discriminatory firm is the follower. When the leader-follower roles are reversed we find that equilibrium pricing policies depend on the consumer's reservation value. The pricing policy game has two equilibria in pure strategies, either both firms price uniformly (f.o.b.) or both firms price discriminate, when the reservation value is low. For intermediate levels of the reservation value, price discrimination is a dominant strategy and the pricing policy game is similar to a Prisoner's Dilemma. When the consumer reservation value is large enough we obtain asymmetric equilibria in which one firm prices according to f.o.b. and the other price discriminates. We also analyze the case of simultaneous price competition and find a mixed strategies equilibrium for the price competition subgame such that the pricing policy game has two equilibria in pure strategies, either both firms price uniformly or both firms price discriminate.
|Date of creation:||Feb 2001|
|Contact details of provider:|| Postal: Avda. Lehendakari, Aguirre, 83, 48015 Bilbao|
Phone: + 34 94 601 3740
Fax: + 34 94 601 4935
Web page: http://www.ea3.ehu.es
More information through EDIRC
|Order Information:|| Postal: Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- THISSE, Jacques-François & VIVES, Xavier, .
"Basing point pricing: Competition versus collusion,"
CORE Discussion Papers RP
1003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Thisse, Jacques-Francois & Vives, Xavier, 1992. "Basing Point Pricing: Competition versus Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 249-260, September.
- Thisse, J-F. & Vives, X., 1990. "Basing Point Pricing: Competition Versus Collusion," UFAE and IAE Working Papers 136-90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- 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.
- Hurter, Arthur Jr & Lederer, Phillip J., 1985. "Spatial duopoly with discriminatory pricing," Regional Science and Urban Economics, Elsevier, vol. 15(4), pages 541-553, November.
- Eber, Nicolas, 1997. "A note on the strategic choice of spatial price discrimination," Economics Letters, Elsevier, vol. 55(3), pages 419-423, September.
- Hummels, David & Levinsohn, James A, 1993. "Product Differentiation as a," American Economic Review, American Economic Association, vol. 83(2), pages 445-449, May.
- Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
- Thisse, Jacques-Francois & Vives, Xavier, 1988.
"On the Strategic Choice of Spatial Price Policy,"
American Economic Review,
American Economic Association, vol. 78(1), pages 122-137, March.
- THISSE, Jacques-François & VIVES, Xavier, . "On the strategic choice of spatial price policy," CORE Discussion Papers RP 793, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Thisse, J.-F. & Vives, X., 1987. "On the strategic choice of spatial price policy," CORE Discussion Papers 1987008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
- 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.
- Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-40, May.
- Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946, October.
When requesting a correction, please mention this item's handle: RePEc:ehu:biltok:200104. 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: (Alcira Macías)
If references are entirely missing, you can add them using this form.