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Nonlinear pricing in spatial oligopoly

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  • Jonathan Hamilton
  • Jacques-François Thisse

Abstract

A model of duopoly competition in nonlinear pricing when firms are imperfectly informed about consumer locations is analyzed. A continuum of consumers purchase a variable amount of a product from one of two firms located at the endpoints of the market. At the Nash equilibrium in quantity-outlay schedules, consumers buy the same quantities as they would from the same firm if it were a monopolist facing the same informational asymmetries, but they receive greater surplus. Hence, no efficiency gains result from competition. If consumers have the option to reveal their locations and have the firms deliver the goods, all consumers choose to reveal their locations in equilibrium. Thus, the inefficiencies from information asymmetries may not arise because firms can deliver the good to consumers. In contrast, with a monopoly seller, consumers have no incentives to reveal their locations.
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Suggested Citation

  • Jonathan Hamilton & Jacques-François Thisse, 1996. "Nonlinear pricing in spatial oligopoly," Review of Economic Design, Springer;Society for Economic Design, vol. 2(1), pages 379-397, December.
    • Handle: RePEc:spr:reecde:v:2:y:1996:i:1:p:379-397
    DOI: 10.1007/BF02499142
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    References listed on IDEAS

    as
    1. Lars A. Stole, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-562, December.
    2. 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.
    3. Hamilton, Jonathan H. & Thisse, Jacques-Francois, 1992. "Duopoly with spatial and quantity- dependent price discrimination," Regional Science and Urban Economics, Elsevier, vol. 22(2), pages 175-185, June.
    4. Spulber, Daniel F, 1981. "Spatial Nonlinear Pricing," American Economic Review, American Economic Association, vol. 71(5), pages 923-933, December.
    5. Spulber, Daniel F., 1989. "Product variety and competitive discounts," Journal of Economic Theory, Elsevier, vol. 48(2), pages 510-525, August.
    6. William J. Furlong & George A. Slotsve, 1983. ""Will That Be Pickup or Delivery?": An Alternative Spatial Pricing Strategy," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 271-274, Spring.
    7. Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946, September.
    8. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    9. repec:bla:econom:v:55:y:1988:i:220:p:461-77 is not listed on IDEAS
    10. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
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    Cited by:

    1. Sílvia Jorge & Cesaltina Pires, 2004. "Delivered versus Mill Nonlinear Pricing in Free Entry Markets," Working Papers de Economia (Economics Working Papers) 22, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
    2. Aguirre, Inaki & Paz Espinosa, Maria, 2004. "Product differentiation with consumer arbitrage," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 219-239, February.
    3. Valletti, Tommaso M., 2000. "Price discrimination and price dispersion in a duopoly," Research in Economics, Elsevier, vol. 54(4), pages 351-374, December.
    4. Valletti, Tommaso M., 2002. "Location choice and price discrimination in a duopoly," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 339-358, May.
    5. Pires, Cesaltina Pacheco & Sarkar, Soumodip, 2000. "Delivered nonlinear pricing by duopolists," Regional Science and Urban Economics, Elsevier, vol. 30(4), pages 429-456, July.

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    More about this item

    Keywords

    D43; D82; C72; L42; Competing principals; Nonlinear pricing; Spatial competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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