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Spatial Competition and Price Discrimination with Capacity Constraints

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  • Matthias Hunold
  • Johannes Muthers

Abstract

We characterize mixed-strategy equilibria when capacity constrained suppliers can charge location-based prices to different customers. We establish an equilibrium with prices that weakly increase in the costs of supplying a customer. Despite prices above costs and excess capacities, each supplier exclusively serves its home market in equilibrium. Competition yields volatile market shares and an inefficient allocation of customers to firms. Even ex-post cross-supplies may restore efficiency only partly. We show that consumers may benefit from price discrimination whereas the the firms make the same profits as with uniform pricing. We use our findings to discuss recent competition policy cases and provide hints for a more refined coordinated-effects analysis.

Suggested Citation

  • Matthias Hunold & Johannes Muthers, 2019. "Spatial Competition and Price Discrimination with Capacity Constraints," Economics working papers 2019-12, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2019_12
    Note: English
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    References listed on IDEAS

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    Cited by:

    1. Somogyi, Robert, 2020. "Bertrand–Edgeworth competition with substantial horizontal product differentiation," Mathematical Social Sciences, Elsevier, vol. 108(C), pages 27-37.
    2. Hunold, Matthias & Muthers, Johannes, 2019. "Spatial competition and price discrimination with capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Bertrand-Edgeworth; capacity constraints; inefficient competition; spatial price discrimination; subcontracting; transport costs;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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