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Endogenous location and pricing policy: mixed strategies make uniform pricing commitment successful

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  • Aguirre, Iñaki

Abstract

We study the strategic choice of spatial price policy (uniform pricing versus spatial price discrimination) in a linear city with quadratic transport costs and endogenous locations, under two alternative three-stage game orderings (following Eber, 1997). The asymmetric subgame (in which one firm discriminates while the other prices uniformly) is solved via the mixed-strategy Nash equilibrium under simultaneous price competition, replacing the Stackelberg standard of Thisse and Vives (1988). In Game I (location-pricing policy-prices), the policy game is a coordination game: both are Nash equilibria but mutual uniform pricing Pareto dominates mutual discrimination. This overturns the Prisoner’s Dilemma that arises under the Stackelberg standard, in which price discrimination is a dominant strategy. In Game II (pricing policy-location-prices), mutual uniform pricing is the unique equilibrium.

Suggested Citation

  • Aguirre, Iñaki, 2026. "Endogenous location and pricing policy: mixed strategies make uniform pricing commitment successful," MPRA Paper 129636, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129636
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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