competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

combining the endogenous choice of price quantity and timing abstract this paper builds a theory of endogenous role distribution leader follower and nash player and of endogenous choice for the type of competition strategy price and quantity in a product differentiated duopoly model we examine an extended game by adding a pre play stage in which duopoly firms simultaneously decide whether to select a price contract or a quantity contract and also whether to move in the first period or in the second period before market competition we demonstrate that the unique equilibrium outcome is simultaneous quantity competition if the goods are substitutes and simultaneous price competition if the goods are complements

research note quantity discounts in differentiated consumer product markets in this paper we extend the standard hotelling model of product differentiation to incorporate a second dimension of consumer heterogeneity that relates to the quantity of the product consumers wish to buy this extension allows us to derive optimal nonlinear pricing rules chosen by competing sellers when offering differentiated products in the marketplace it also permits us to assess whether sellers find it optimal to offer quantity discounts in such a setting and the implications of such discounts on their profitability we find that offering quantity discounts corresponds indeed to equilibrium behavior the extent of discounting declines the less differentiated the products surprisingly when sellers offer to consumers a choice between two different sized packages their profits are at most as high as when such a choice is unavailable moreover when utilizing nonlinear pricing rules is not feasible the profits of the sellers actually decline when they offer consumers a choice between different sized packages a limited empirical investigation supports the comparative statics we derive in our theoretical model

basing point pricing and production concentration basing point pricing is a delivered price system in which the price quoted for delivery of a commodity is the sum of the price quoted at a predetermined basing point plus the cost of transportation from the basing point to the point of delivery whether or not the commodity is actually shipped from the basing point thus a seller who is not located at the base site absorbs freight for shipments toward the base point and charges phantom freight on shipments away from the base point basing point pricing has been widely practiced throughout the world for example testimony of the federal trade commission before the tnec i 94 i p 33 alleged that industries in the united states which then or previously followed basing point pricing included lumber iron and steel pig iron cement lime brick asphalt shingles and roofing window glass white lead metal lath building tile floor tile gypsum plaster bolts nuts and rivets cast iron soil pipe range boilers valves and fittings sewer pipes paper and paper products salt sugar corn derivatives industrial alcohol linseed oil fertilisers chemicals transportation equipment and power cable almost from its inception economists have generally considered basingpoint pricing to reflect a cartel or price leadership arrangement hoover i937 stigler i949 machlup i949 and such practices have been attacked under antitrust statutes for example aetna portland cement co vs ftc i 57 f 2nd 533 i946 triangle conduit cable co vs ftc i68 f 2nd i 75 7th cir i 948 cement institute vs ftc i57 f 2nd 533 i948 nonetheless basing point pricing remains prevalent particularly outside the united states opec has used a gulf based price plus transport costs to determine the delivered prices of crude oil to most places in the world haddock i982 p 290 the pricing of cement in great britain and steel in europe can be characterised as multibase point systems greenhut i987 recent attempts by for example haddock i982 to return to the theme that the basing point system could be competitive and desirable have been challenged by thisse and vives i988 and benson et al i990 on the basis of recent advances in the analysis of pricing policy given then that we assume basing point pricing to be a collusive device adopted by incumbent firms to impose some kind of price discipline on potential entrants the price leadership point referred to above important strategic and locational issues arise in particular a major concern of the early analysis of basing point pricing was the effect such a pricing policy would have on location choice of entrant firms

imperfect competition and basing point pricing i introduction basing point pricing occurs when firms that are geographically differentiated use a common location to formulate the transportation costs and thus delivered prices charged to consumers consumers are not generally permitted to purchase the commodity at free on board mill prices since such prices exist only for firms located at the basing point basing point pricing is sometimes associated with other seemingly unusual practices such as cross hauling the systematic transshipment of apparently identical commodities freight absorption the shipment of identical commodities longer distances at delivered prices that do not reflect additional transportation charges and phantom freight the assessment of fictitious transportation charges basing point pricing has a rich history in the united states and more recently was widely practiced by firms in the softwood plywood industry 1 economists have long been interested in the determinants of basing point pricing 2 their inquires have generally led them to conclude that basing point pricing is adopted to facilitate collusion 3 this view is articulated by stigler 1949 who combined two important branches of the literature to formulate a theory of how basing point pricing and more generally any delivered pricing system can solve the problems of cartel instability confronting firms that are geographically differentiated and face stochastic demand 4 examining the case of multiple production centers with limited numbers of firms serving geographically uncertain demand stigler 1949 1148 argued that the unpremeditable flexibility of mill prices would make it extremely difficult to maintain collusion among firms at the production center and even more difficult to maintain collusion between firms at different production centers the systematic freight absorption associated with any delivered pricing system provides a solution to these problems with a delivered pricing system there is a single price at each point in the market if transportation charges are agreed upon so price rivalry is eliminated one production center can sell in the natural territories of other production centers when this is necessary to obtain its share of the industry s sales these distant sales involve freight absorption moreover and are therefore partly self limiting the various prices need not change often so collusion is possible given the unstable geographical pattern of demand and the antitrust laws systematic freight absorption permitted efficient collusion stigler also provided some evidence such as the general magnitude of demand variability in those industries characterized by basing point pricing to support his hypothesis that delivered prices and basing point pricing facilitate collusion building upon stigler s theory mcgee 1954 argued that cross hauling is a symptom of the collusion facilitated by basing point pricing in a recent paper haddock 1982 challenged this view and argued that basing point pricing can arise if a firm at other than the base site takes the delivered price of the basing point product as given when formulating its production decision given this behavior a non base site firm faces a kinked marginal revenue schedule that supports basing point pricing for a wide range of marginal production and transportation cost schedules the non base firm earns a markup on its product in a particular market equal to the difference between the delivered price charged by base site firms and the non base site firm s costs of production and delivery the behavior and markups earned by firms located at the base point are not restricted in haddock s model and presumably can include bertrand behavior and competitive markups the behavior of non base site firms is explicitly monopolistic haddock also provided some non collusive rationales for cross hauling in contrast to the view that basing point pricing is adopted to facilitate collusion among all firms in the industry haddock s argument is that basing point pricing can have little to do with pervasive collusion and may at most be associated with positive markups and phantom freight charges by firms on the periphery of production

the impact of provincial marketing boards on price relations and pricing dynamics in the north american slaughter hog market canadian provincial hog marketing boards act as sales agents for hog producers the hypothesis that the introduction of marketing boards in alberta manitoba and saskatchewan between 1969 and 1972 created seller side market power is tested and supported their hog prices rose to levels comparable to ontario where a marketing board had been in place organized sellers can also influence pricing dynamics because of the linked spatial oligopsonistic nature of the hog packing industry cointegration tests and variance decompositions indicate that establishing boards in the surplus producing western provinces made them relatively less isolated from pricing innovations in deficit producing eastern canada

fuel taxes an important instrument for climate policy abstract this article shows that fuel taxes serve a very important role for the environment and that we risk a backlash of increased emissions if they are abolished fuel taxes have restrained growth in fuel demand and associated carbon emissions although fuel demand is large and growing our analysis shows that it would have been much higher in the absence of domestic fuel taxes people often assert that fuel demand is inelastic but there is strong research evidence showing the opposite the price elasticity is in fact quite high but only in the long run in the short run it may be quite inelastic which has important implications for policy makers had europe not followed a policy of high fuel taxation but had low us taxes then fuel demand would have been twice as large hypothetical transport demand in the whole oecd area is calculated for various tax scenarios and the results show that fuel taxes are the single most powerful climate policy instrument implemented to date yet this fact is not usually given due attention in the debate

duopoly delivered pricing and horizontal mergers federal merger guidelines recognize that when sellers are spatially dispersed the closeness of competitors can be crucial in evaluating the welfare consequences of a merger 1 this recognition makes it surprising that more research has not focused on the issue of horizontal mergers in spatial models the spatial setting is particularly interesting since the fact that a merger might occur in the future can alter the location decision made by firms we analyze a spatial duopoly with price discrimination in the first stage firms choose locations noncooperatively along a linear market with the foresight that a merger may occur in a later stage in the second stage firms decide whether to merge delivered price schedules are announced in stage three within this structure we study the effects of simultaneous and sequential entry and conclude that the possibility of merger generally leads to inefficient location choices and higher transport costs levy and reitzes examine the anticompetitive effects of mergers in salop s circular model 9 12 in this model firms are evenly spread around a circle and then a bertrand nash game is played in prices they conclude that if two adjoining firms merge the merged firm will increase prices at both its locations and prices will rise although to a lesser extent at all other locations in related work mcafee simons and williams study a cournot nash model of horizontal mergers between firms that engage in spatial price discrimination 10 their work also yields an estimate of the increases in equilibrium post merger delivered price yet both of these studies treat firm locations as fixed this rules out any influence of future possible merger on the location choices of firms we will show that this influence can be substantial

an analytic history of delivered price litigation do courts properly distinguish rivalrous from collusive instances the federal judiciary s present cautious approach to delivered pricing is appropriate using court records and recent contributions to the economic literature this article evaluates the antitrust history of those practices delivered pricing can replace mill pricing naturally in some rivalrous settings but under special circumstances could be collusive thus delivered pricing has sometimes been adjudged a sherman act violation but only given other evidence of collusion for a time however the legal system threatened to treat delivered pricing as a per se violation of the clayton and federal trade commission acts that reflected poor economic understanding delivered pricing litigation seems to be a pure statutory phenomena our investigation has unearthed no cases under the common law of restraint of trade 1 since the advent of federal antitrust legislation however plaintiffs have relied on several distinct acts of congress to bring delivered pricing practices before the courts the earliest of those statutes the sherman act of 1890 forbad conspiracies in restraint of trade but courts typically have required explicit evidence before they will find a collusive conspiracy the mere use of a novel and poorly understood delivered pricing technique has not been enough relying on the clayton and federal trade commission acts of 1914 however lawyers formulated various claims that purported to draw an inference of collusion from the mere use of a particular delivered pricing schedule under those arguments no evidence of collusion was to be required several important precedents were set in reliance on such claims that we argue below is a leap of logic inconsistent with present economic understanding because the courts sometimes have accepted such theories but at other times have not the predictability of the law has been eroded to the cost of defendants and ultimately to the cost of consumers i the dawn of delivered pricing as an antitrust problem the history a number of industrial practices that became evident during the decades following the civil war were soon followed by statutory antitrust law which largely supplanted the common law antitrust precedents that had developed over the preceding centuries the speed and distance over which commercial orders could conveniently be placed and deliveries made steadily increased as local and regional transportation and communication networks expanded to form national systems that evolution enabled aggressive entrepreneurs to expand local markets into regional ones regional markets into national ones and national markets into world wide markets 2 in industries where technical scale economies were important the market expansion ultimately led to large scale production centers arising at particularly favorable transport hubs resource nodes or buyer concentrations concomitantly firms at less favorable sites either failed in the face of the stiffening long distance competition or found ways to thread themselves into small niches that had been left poorly served by the large scale production centers in the absence of significant differentiation of the physical product modern economic theory implies that it would be difficult for more than one firm to survive in a single small market away from the advantaged production centers in a predominantly large scale industry 3 so with no local competitors such remote enterprises as did survive would be able to price discriminate among nearby customers in that sense the surviving small remote firms would resemble the norm from an earlier day when markets were more commonly characterized by small dispersed spatial monopolies but the manufacturing costs of firms in the new highly competitive production centers coupled with the transport costs required for them to reach various points in a market determined the delivered prices that were available from the production center

cost of energy and environmental policy in portuguese co2 abatement scenario analysis to 2020 abstract this paper quantifies the contribution of portuguese energy policies for total and marginal abatement costs mac for co2 emissions for 2020 the times pt optimisation model was used to derive mac curves from a set of policy scenarios including one or more of the following policies ban on nuclear power ban on new coal power plants without carbon sequestration and storage incentives to natural gas power plants and a cap on biomass use the different mac shows the policies effects in the potential for co2 abatement in 2020 in the most encompassing policy scenario with all current and planned policies is possible to abate only up to 35 of 1990 emissions at a cost below 23 t co2 in the more flexible policy scenarios it is possible to abate up to 10 of 1990 emissions below the same cost the total energy system costs are 10 13 higher if all policies are implemented 76 to 101 b roughly the equivalent to 2 01 2 65 of the 2005 gdp thus from a co2 emission mitigation perspective the existing policies introduce significant inefficiencies possibly related to other policy goals the ban on nuclear power is the instrument that has the most significant effect in mac

the optimal initial allocation of pollution permits a relative performance approach the initial allocation of pollution permits is an important aspect of emissions trading schemes we generalize the analysis of bohringer and lange 2005 eur econ rev 49 8 2041 2055 to initial allocation mechanisms that are based on inter firm relative performance comparisons including grandfathering and auctions as well as novel mechanisms we show that using firms historical output for allocating permits is never optimal in a dynamic permit market setting while using firms historical emissions is optimal only in closed trading systems and only for a narrow class of allocation mechanisms instead it is possible to achieve social optimality by allocating permits based only on an external factor which is independent of output and emissions we then outline sufficient conditions for a socially optimal relative performance mechanism

on the design of optimal grandfathering schemes for emission allowances to meet its commitment under the kyoto protocol the eu plans to implement an emissions trading system whith grandfathering of allowances besides having distributional impacts the choice of the grandfathering scheme may affect efficiency if firms anticipate how future allocations depend on upcoming decisions in this paper we determine central design rules for optimal grandfathering within a simple two period model we find that for small open trading systems where allowance prices are exogenous first best second period grandfathering schemes must not depend on firm specific decisions in the first period second best schemes correspond to a ramsey rule of optimal tax differentiation and are generally based on both previous emissions and output however ofr closed emissions trading systems i e endogeneous allowance prices firstand second best rules coincide and must not depend on previous output levels they consist of an assignment proportional to the emissions in the first period plus a term which does not depend on firm specific decisions in either of the two periods

a note on the strategic choice of spatial price discrimination abstract we investigate the robustness of the tendency for hotelling duopolists to use spatial price discrimination in a model with quadratic transportation costs mill pricing is shown to emerge as the unique equilibrium outcome when firms commit to a price policy before choosing locations and price levels

eu climate policy up to 2020 an economic impact assessment in its fight against climate change the eu is committed to reducing its overall greenhouse gas emissions to at least 20 below 1990 levels by 2020 to meet this commitment the eu builds on segmented market regulation with an eu wide cap and trade system for emissions from energy intensive installations ets sectors and additional measures by each eu member state covering emission sources outside the cap and trade system the non ets sector furthermore the eu has launched additional policy measures such as renewable energy subsidies in order to promote compliance with the climate policy target basic economic reasoning suggests that emission market segmentation and overlapping regulation can create substantial excess costs if we focus only on the climate policy target in this paper we evaluate the economic impacts of eu climate policy based on numerical simulations with a computable general equilibrium model of international trade and energy use our results highlight the importance of initial market distortions and imperfections as well as alternative baseline projections for the appropriate assessment of eu compliance cost

third degree price discrimination quality choice and welfare abstract employing an endogenous quality choice model we reconsider the effect on welfare of monopolistic third degree price discrimination we prove that price discrimination always enhances welfare mainly because the quality improvement owing to price discrimination increases consumer surplus moreover we show that third degree price discrimination benefits all parties including consumers in the higher priced market if the preference differences between markets are sufficiently large

on the efficiency of location decisions under discriminatory pricing abstract the paper analyzes the question of whether delivered pricing policies give rise to an inefficient location of firms and in particular to a geographical distribution of capacity which is overly concentrated the analysis adds to the literature on spatial pricing and location decisions the element of uncertainty over the timely delivery of products and therefore the possibility that risk averse consumers may be willing to pay a higher delivered price for products if they can hedge and divide their orders among two suppliers the results are in strong contradiction to the common belief that identical delivered pricing systems produce a highly inefficient distribution and that fob would yield the optimal location however it is shown that in markets with coordination problems the concern about excessive concentration of productive capacity may be legitimate

a model of price promotions with consumer search this paper presents a price discrimination model of price promotions the distinguishing feature of our model is the explicit distinction between regular and promotional prices regular prices are chosen first then promotional prices further while regular prices are always available to everyone promotional prices are only available when offered and only to those who search for them we show that even a monopolist will offer random promotions under these circumstances furthermore as search costs increase the frequency and depth of promotions increase with competition for the promotion oriented consumers the seller becomes more aggressive in his promotional policies even more so as search costs increase the high reservation price consumers however end up worse off with competition

sectoral and regional impacts of the european carbon market in portugal abstract across europe co 2 emission allowances represent one of the main policy instruments to comply with the goals of the kyoto protocol in this paper we use microdata to address two issues regarding the impact of the european carbon market eu ets first we analyze the sectoral effects of the eu ets in portugal the goal is to study the distributive consequences of imbalances with the novelty of taking into account firm financial data to put values into context we show that a large majority of installations in most sectors had surpluses and the opportunity to raise remarkable revenues in some cases we also look at the regional impact since the pre existing specialization of different regions in the production of different goods and services might lead to an uneven economic impact of the allowance market in particular portuguese data indicate a distribution of revenue from low income to high income regions or rather between installations located in those regions we focus on the first phase of the eu ets using data for each one of the 244 portuguese installations in the market as well as financial data for 80 of these installations although we also present data for 2008 and 2009

product differentiation and collusion sustainability when collusion is costly a widely debated question in recent years by both strategy theorists and antitrust practitioners is what role product differentiation between firms plays in their ability to sustain a collusive agreement in order to reduce the strength of competition and gain higher profits this paper addresses the following question what happens to the product differentiation collusion sustainability relationship when setting up and maintaining an agreement is costly we show that introducing collusion costs into the discussion has relevant implications indeed sufficiently high collusion costs modify the underlying market structure thus altering the product differentiation collusion sustainability relationship with respect to the case where collusion costs are absent or low in particular if the gains from collusion are increasing decreasing with the degree of product differentiation the relationship between product differentiation and collusion sustainability is always positive negative whereas if the gains from collusion are inverted u shaped the relationship is inverted u shaped too these results stress the importance of considering those markets where the coordination between firms is sufficiently costly as structurally different from those markets where coordination has no costs for firms

on the optimal product line selection problem with price discrimination product line design decisions are determinant for a firm s market success and simultaneously very costly to implement and change to evaluate the profitability of a design a number of mathematical programming approaches have been proposed in the last three decades typically nonlinear integer optimization problems that can only be tackled heuristically for real world instances recently chen and hausman 2000 efficiently exploited the fractional programming properties of a stylized model for product line and price selection with the objective to maximize contribution given homogeneous customer behavior by an aggregate multinomial logit choice model we extend the approach of chen and hausman chen k d w h hausman 2000 technical note mathematical properties of the optimal product line selection problem using choice based conjoint analysis management sci 46 2 327 332 to determine an optimal product line under a personalized or group pricing strategy in markets with multiple heterogeneous consumers such that total profit including fixed costs is maximized personalized group pricing is a growing discrimination strategy that more and more businesses are realizing is not only very profitable but also often implementable in the era of e business our problem formulation allows to incorporate commonly applied attraction choice models including the multinomial logit the bradley terry luce and approximately the first choice model though the problem is generally nonlinear we show that the fractional substructure resulting from attraction choice models can still be exploited to globally solve real world instances in reasonable time

resale price maintenance and spatial price discrimination abstract in this article we examine resale price maintenance rpm in a classic model of downstream retailers engaging in spatial price discrimination we show that a resale price floor increases the total profit of the upstream monopoly when transport cost product differentiation is relatively low importantly this profitable rpm floor can also enhance social welfare and even consumer surplus a resale price ceiling can also be profitable and always improves consumer surplus and social welfare we argue that such findings support a rule of reason approach to rpm

price drivers and structural breaks in european carbon prices 2005 2007 this article aims at characterizing the daily price fundamentals of european union allowances euas traded since 2005 as part of the emissions trading scheme ets the presence of two structural changes on april 2006 following the disclosure of 2005 verified emissions and on october 2006 following the european commission announcement of stricter phase ii allocation allows to isolate distinct fundamentals evolving overtime the results extend previous literature by showing that eua spot prices react not only to energy prices with forecast errors but also to unanticipated temperatures changes during colder events besides the sub period decomposition of the pilot phase gives a better grasp of institutional and market events that drive allowance price changes

product customization and price competition on the internet the internet provides an unprecedented capability for sellers to learn about their customers and offer custom products at special prices in addition customization is more feasible today because of advances in manufacturing technologies that have improved sellers manufacturing flexibility we first develop a model of product customization and flexible pricing to incorporate the salient roles of the internet and flexible manufacturing technologies in reducing the costs of designing and producing tailored consumer goods we show how a monopoly seller may earn the highest profits by producing both standard and custom products and can raise prices for both types of products as customization and information collection technologies improve simultaneous adoption of customization in a duopoly reduces the differentiation between their standard products but does not intensify price competition compared with a two facility monopolist the duopoly may underinvest in customization consumer surplus improves after sellers adopt customization but does not monotonically increase as customization technologies advance when firms face a fixed entry cost and adopt customization sequentially the first entrant always achieves an advantage and may be able to deter subsequent entry by choosing its customization scope strategically

fighting collusion by permitting price discrimination we investigate the effect of a ban on third degree price discrimination on the sustainability of collusion we build a model with two firms that may be able to discriminate between two consumer groups two cases are analyzed i best response symmetries so that profits in the static nash equilibrium are higher if price discrimination is allowed ii best response asymmetries so that profits in the static nash equilibrium are lower if price discrimination is allowed in both price discrimination scenarios firms discount factor has to be higher in order to sustain collusion in grim trigger strategies than under uniform pricing

customer information sharing among rival firms abstract the recent rapid growth of the internet as a medium of communication and commerce combined with the development of sophisticated software tools are to a large extent responsible for producing a new kind of information databases with detailed records about consumers preferences these databases have become part of a firm s assets and as such they can be sold to third parties this possibility has raised numerous concerns from consumer privacy advocates and regulators who have entered into a heated debate with business groups and industry associations about whether the practice of customer information sharing should be banned regulated or left unchecked this paper investigates the incentives of rival firms to share their customer specific information and evaluates the welfare implications if such exchanges are banned in the context of a perfect price discrimination model

privacy and personal data collection with information externalities abstract we provide a theoretical model of privacy in which data collection requires consumers consent and consumers are fully aware of the consequences of such consent nonetheless excessive collection of personal information arises in the monopoly market equilibrium which results in excessive loss of privacy compared to the social optimum the main mechanism for this result is information externalities and users coordination failure in which some users decision to share their personal information may allow the data controller to infer more information about non users we also show that the emergence of data brokerage industry can facilitate the collection and monetization of users personal data even in a fragmented market where no individual website has incentives to do so independently due to scale economies in data analytics we discuss policy implications of our analysis in light of the recent eu general data protection regulation gdpr

tradeable carbon permit auctions how and why to auction not grandfather abstract an auction of carbon permits is the best way to achieve domestic carbon caps designed to limit global climate change to minimize administrative costs permits would be required at the level of oil refineries natural gas pipe lines natural gas liquid sellers and coal processing plants to maximize liquidity in secondary markets permits would be fully tradable and bankable the government would conduct quarterly auctions a standard ascending clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery an auction is preferred to grandfathering giving companies permits based on historical output or emissions because it allows reduced tax distortions provides more flexibility in distribution of costs provides greater incentives for innovation and reduces the need for politically contentious arguments over the allocation of rents

delivered pricing and merger with demand constraints i introduction studies of merger activity in models of spatial price discrimination conventionally assume that pricing by firms is not constrained by demand instead the only constraints on the discriminatory prices charged are the cost structures of the adjacent rivals the issue of demand constraints has received attention by wang and yang 1999 in related literature but not in examining the consequences of a spatial merger we demonstrate that when discriminatory prices are constrained by willingness to pay demand the conclusions of existing models must be substantially modified first although introducing a demand constraint does not alter firm locations in the absence of merger it does alter firm locations in the presence of merger second the demand constraint results in equilibrium locations that depend on transport cost which is not the case in previous models transport cost plays an important role in spatial models and its absence to date from models of spatial merger is unrealistic moreover the dependence of location on transport costs invites the possibility that a tax on transport costs can change locations in an efficient fashion third introducing a demand constraint reverses previous results relating to the merger paradox in particular in the absence of a demand constraint models of spatial price discrimination provide instances in which the parties to a merger gain profit and the excluded firms lose profits there are no such instances in the presence of demand constraints in what follows the second section places our work within the literature and highlights the issue of demand constraints the third section presents the model contrasting it with earlier models the fourth section identifies the equilibrium locations that arise when there is the prospect of merger and contrasts these locations with those that arise in the absence of demand constraints the section also demonstrates that when demand is constrained the model of spatial price discrimination yields no cases that resolve the merger paradox a result contrasting with that offered by the model in which demand constraints are absent the fifth section demonstrates that a tax on transport can increase welfare indeed the optimal tax often completely eliminates spatial price competition by creating local monopolies the sixth section considers the full range of cases in which some but not all firms may face constrained demand and also proves that in the fully constrained case considered earlier the entire market will be served a seventh section considers a partially constrained case and the eighth section concludes ii spatial price discrimination and constrained demand spatial models have proven especially useful in capturing aspects of competition in horizontally differentiated markets as emphasized by tirole 1988 in particular they provide a general method for examining markets in which an ordered product characteristic differentiates output 1 among the more popular models is that of discriminatory pricing in which the price a firm is able to charge depends upon how close it is to its rivals thisse and vives 1988 show that such pricing is the preferred alternative when firms are able to adopt it lederer and hurter 1986 demonstrate that under such pricing rivals locate symmetrically along a linear market thus minimizing total transport costs early studies of merger in a model of spatial discrimination assumed that location choices do not anticipate the merger reitzes and levy 1995 show that such a merger increases the prices and profits of the participants but leaves those of all other firms unchanged gupta et al 1997 show that an anticipated horizontal merger alters the locations of spatially discriminating duopolists and increases transport cost thereby reducing efficiency rothschild et al 2000 confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival

branch banking and the geography of bank pricing we show that bank branching tends to mitigate localized market power by broadening the geographic scope of competition among banks even though branch banking allows banks to differentiate themselves through their choices of branch locations banking services at peripheral locations will be priced more competitively when those locales are served by branch networks we develop a theoretical model in support of this view and offer empirical evidence

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

non discrimination clauses in the retail energy sector the british energy regulator will soon review a non discrimination licence condition which it imposed to ensure that energy retailers charge the same mark up in different regions many consumers are loyal to incumbent firms necessitating heavy discounting by entrants to attract customers which had led to regional price discrimination matching characteristics of the energy market to models of discrimination we identify the necessary conditions for the licence condition to have a positive effect for consumers and explore whether the policy has helped potentially vulnerable consumers we conclude that the most likely effect of the licence condition is to reduce competition in the mainstream energy markets and welcome the regulator s latest review of the retail market

social learning in networks of friends versus strangers networks and the embedded relationships are critical determinants of how people communicate and form beliefs the explosion of social media has significantly increased the scope and impact of social learning among consumers this paper studies observational learning in networks of friends versus strangers a consumer decides whether to adopt a product after receiving a private signal about product quality and observing the actions of others the preference for the product has greater heterogeneity in the stranger network than in the friend network we show that when the network is small observing friends actions helps the consumer make more accurate inferences about quality as the network grows however the stranger network becomes more effective underlying these results are two competing effects of network heterogeneity on social learning these are the individual preference effect which allows one to make a better quality judgment when the preference element of past actions is more certain and the social conforming effect wherein private signals are underused in quality judgment as people follow others actions we find cascading is more likely to occur in the friend network than in the stranger network for a high quality firm the stranger network generates greater sales than the friend network when the network size is sufficiently large or the private signal is sufficiently accurate we also examine the existence of experts and firms using advertising to influence consumers finally we show how networks that are highly homogeneous or heterogeneous could impede observational learning

behavior based pricing in vertically differentiated industries we study behavior based pricing bbp in a vertically differentiated model vertical differentiation is innately asymmetric because all customers prefer the higher quality product when prices are equal this asymmetry causes bbp to have different properties than symmetric horizontally differentiated models we highlight two dimensions that affect the analysis the role of quality adjusted cost differences between the firms and the role of consumer discounting relative to firm discounting in the second period consistent with the prior literature we find that there are conditions based on market shares and quality adjusted costs under which either the low quality firm or the high quality firm but not both will reward its current customers with lower prices than it charges to new customers we then consider whether these conditions can arise in a two period equilibrium we find that if consumers sufficiently discount the future periods then firms at enough of a competitive disadvantage will reward their customers i e the low quality firm will reward its current customers if the quality adjusted cost differential between the two firms is small while the high quality firm will reward its current customers if this cost differential is large conversely we find that if consumers do not discount the future very much then the firm at a competitive disadvantage i e a low quality firm competing against a low cost high quality firm or a high quality firm that has very high costs can earn greater profits with bbp than without bbp although there are cases where both firms may benefit from bbp this paper was accepted by j miguel villas boas marketing

bundling and competition for slots we consider competition between sellers selling multiple distinct products to a buyer having k slots under independent pricing a pure strategy equilibrium often does not exist and equilibrium in mixed strategy is never efficient when bundling is allowed each seller has an incentive to bundle his products and an efficient technology renting equilibrium always exists furthermore in the case of digital goods or when sales below marginal cost are banned all equilibria are efficient comparing the mixed strategy equilibrium with the technology renting equilibrium reveals that bundling often increases the buyer s surplus finally we derive clear cut policy

bundling and international market segmentation the paper shows how firms by bundling their products with nontradables may contribute to the segmentation of international oligopoly markets we develop a simple example with two products one that is homogeneous across markets and one that is bundled with a nontradable e g local services integration of the markets for the homogeneous product yields the expected price equalization across markets however integration of the markets for bundled products leaves the economy entirely unaffected hence the standard methodology of comparing a segmented and an integrated equilibrium would exaggerate the effects of integration in this economy

competitive customer poaching with asymmetric firms abstract conditioning the pricing policies on purchase history is proven to generate a cutthroat price competition enhancing consumer surplus this result typically relies on a framework where competitors are assumed to be symmetric this paper demonstrates that under significant asymmetries of competing firms the strong firm trades off current market share for future market share and the weak firm does the opposite this inter temporal market sharing agreement generates unidirectional poaching and entails new and distinctive welfare implications in particular if consumers are sufficiently myopic price discrimination softens price competition in relation to uniform pricing overturning the conclusion of previous studies

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

when can carbon abatement policies increase welfare the fundamental role of distorted factor markets abstract this paper employs analytical and numerical models to assess the welfare effects of a revenue neutral carbon tax and nonauctioned carbon emissions permits taking into account preexisting tax distortions in factor markets the presence of preexisting taxes significantly raises the general equilibrium costs of both policies this cost increase is much greater under emissions permits since this policy does not generate revenues to reduce distortionary taxes under our central estimates emissions permits cannot increase welfare unless environmental damages exceed about 18 per ton of carbon in contrast an appropriately scaled carbon tax is welfare improving so long as environmental damages are positive

intra union flexibility of non ets emission reduction obligations in the european union the eu proposal on greenhouse gas emission reduction has 28 targets for 2020 an eu wide one for co2 emissions covered by the european trading system ets and one target for non ets emissions per member state implementation is more expensive than needed i consider three alternative proposals to reduce costs in the irish proposal member states can purchase ets permits to offset excess non ets emissions in the polish proposal member states can sell excess non ets emissions in the ets in the swedish proposal member states can trade their non ets allocations i compare these alternatives to the default policy no flexibility outside the ets and the cost effective solution full flexibility i calibrate a simple model to the results of the eu impact assessment which did not disclose all details and made odd assumptions the non ets allocation exceeds the projected emissions for three member states the alternative flexibility mechanisms would be used to only a limited extent but would cut the costs of meeting the target the swedish and polish proposals come closest to the cost effective solution because of the hot air the irish proposal performs best if there are negative surprises in either abatement costs or emissions the swedish proposal will become policy

multiproduct pricing in oligopoly abstract this paper proposes a two good model of price competition where some consumers visit all shops and others visit only one we find that information frictions lead to price dispersion when the two goods are complements their prices will tend to be negatively correlated so if one is priced high the other will be discounted this finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent if the goods are substitutes their prices will be uncorrelated potentially rationalizing the lack of evidence on their co pricing when selling complements retailers earn higher profits than in the one good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively bundling practices are thus shown to be detrimental to retailers profits

eu emission allowances and the stock market evidence from the electricity industry this paper constitutes to our best knowledge the first econometric analysis on stock market effects of the eu emission trading scheme eu ets our results suggest that eu emission allowance eua price developments matter to the stock performance of electricity firms eua price changes and stock returns of the most important european electricity corporations are shown to be positively related this effect does not work asymmetrically so that stock markets do not seem to react differently to eua appreciations in comparison to depreciations the carbon market effect is shown to be both time and country specific it is particularly strong for the period of eua market shock in early 2006 and differs with respect to the countries where the electricity corporations analysed are headquartered stock market reactions to eua volatility could not be shown

forms of emergence and the evolution of economic landscapes abstract over the past two decades the notion of emergence has attracted increasing attention and controversy across the social science including economics within this context as economic geographers our concern in this paper is with the usefulness of the idea of emergence for studying the economic landscape and its evolution the paper considers in what sense geographical processes and places can legitimately be described as emergent how such places themselves produce emergent effects and how we should conceive of and study the emergent space economy to do this we apply deacon s 2006 models of first order second order and third order emergence and trace through their implications for constructing an emergence perspective in economic geography the notion of third order emergence is argued to be the most promising since it focuses explicitly on emergence as an evolutionary process what is evident however is that a notion developed mainly for applications in physical and biological systems requires further elaboration and exploration if it is to provide explanatory leverage in studying the evolution of economic landscapes

competition advertising and meeting competition clauses abstract pricing according to meeting competition clauses mcc s is often argued to enforce collusive agreements our analysis incorporates uncertainty and advertising we show within a spatial model that mcc s permit price discrimination but at the expense of lower profits

market segmentation and collusive behavior abstract the recent literature on oligopolistic third degree price discrimination has been primarily concerned with rival firms incentives to acquire customer specific information and the consequences of such information on firm profitability and welfare this literature has taken mostly a static view of the interaction between competing firms in contrast in this paper we investigate the impact of customer specific information on the likelihood of tacit collusion in a dynamic game of repeated interaction this issue is very important because competitive price discrimination usually leads to a cutthroat price competition prisoners dilemma among firms firms therefore may seek ways to soften competition and sustain higher prices our main result is that collusion becomes more difficult as the firms ability to segment consumers improves

basing point pricing competition versus collusion we consider the implications of game theoretic models for the competitive or collusive nature of basing point pricing bpp in one shot games equilibrium price schedules do not generally conform to bpp with unrestricted price competition nevertheless bpp can emerge in dynamic contexts define modified fob price policy as using fob in one s natural market and matching the rival s delivered price whenever profitable a configuration where both firms do this is a subgame perfect equilibrium of a two stage game where firms choose first price policies and then compete in the marketplace further with repeated competition bpp can be used as punishment device

spatial price discrimination with heterogeneous products product heterogeneity is introduced into the context of spatial price discrimination many of the strong properties of the standard homogeneous goods case which are attained as a limit case here are shown to be no longer valid in particular the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different

carbon dioxide emissions intensity of portuguese industry and energy sectors a convergence analysis and econometric approach abstract given the relevance of energy and pollution issues for industrialised countries and the importance of industry and energy sectors to the achievement of their economic and environmental goals it is important to know if there is a common pattern of emissions intensity fuel intensity and energy intensity between industries to know if it justifies a more specific application of energy policies between sectors which sectors have the greatest potential for reducing energy use and which are the long term effects of those specific variables on the mitigation of emissions we found that although there is literature on decomposition of effects that affect emissions the study of the convergence and of the relationships between these variables does not include ratios or effects that result from the decomposition analysis thus the above questions are not answered much less for the portuguese reality the purpose of this paper is to study i the existence of convergence of some relevant ratios as carbon dioxide co 2 emissions intensity co 2 emissions by fossil fuel consumption fossil fuel intensity energy intensity and economic structure between industry and energy sectors in portugal and ii the influence that the consumption of fossil fuels the consumption of aggregate energy and gdp have on co 2 emissions and the influence that the ratios in which co 2 emissions intensity decomposes can affect that variable using an econometric approach namely panel corrected standard errors estimator we concluded that there is sigma convergence for all ratios with exception of fossil fuel intensity gamma convergence verifies for all ratios with exception of co 2 emissions by fossil fuel from the econometric approach we concluded that the considered variables have a significant importance in explaining co 2 emissions and co 2 emissions intensity

the eu 20 20 2020 targets an overview of the emf22 assessment three computable general equilibrium models are used to estimate the economic implications of a stylized version of eu climate policy if implemented at the lowest possible cost the 20 emissions reduction would lead to a welfare loss of 0 5 2 0 by 2020 second best policies increase costs a policy with two carbon prices one for the ets one for the non ets could increase costs by up to 50 a policy with 28 carbon prices one for the ets one each for each member state could increase costs by another 40 the renewables standard could raise the costs of emissions reduction by 90 overall the inefficiencies in policy lead to a cost that is 100 125 too high the models differ greatly in the detail of their results the ets non ets split may have a negligible impact on welfare while the renewables standard may even improve welfare the models agree however that the distortions introduced by total eu package imply a substantial welfare loss over and above the costs needed to meet the climate target the marginal total and excess costs reported here are notably higher than those in the impact assessment of the european commission

critical survey the new geographical turn in economics some critical reflections over the past few years a new geographical economics has emerged focused on the spatial agglomeration of industry and the long run convergence of regional incomes several leading names are associated with this geographical turn including paul krugman michael porter robert barro and w brian arthur this new economic geography it is argued here is neither that new nor is it geography instead it is a reworking or re invention using recent developments in formal mathematical mainstream economics of traditional location theory and regional science as such it is quite opposed to and difficult to reconcile with the work on regional development and industrial agglomeration being carried out in economic geography proper

imperfect price discrimination in a vertical differentiation model abstract we explore the competitive implications of third degree price discrimination based on consumer information of varying degrees of precision in a vertical differentiation duopoly model we show that if the cost of information is below a threshold only the high quality firm will acquire it and offer targeted promotions while the low quality firm will commit to a uniform price for any degree of consumer information precision equilibrium profits of the high quality firm are monotonically increasing and that of the low quality firm monotonically decreasing as a function of the consumer information precision finally social and consumer welfare are monotonically increasing with respect to the precision of consumer information

why firms may prefer not to price discriminate via mixed bundling abstract we analyze a simple model of joint purchase discounts using a discrete choice framework to characterize consumer choices the model suggests that mixed bundling is more likely to be associated with monopoly this is due to the benefits reaped via price discrimination in a duopoly environment however only pure components pricing may be offered in equilibrium since firms fear the extra degree of competition inherent in mixed bundling

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

the perils of behavior based personalization behavior based personalization has gained popularity in recent years whereby businesses offer personalized products based on consumers purchase histories this paper highlights two perils of behavior based personalization in competitive markets first although purchase histories reveal consumer preferences competitive exploitation of such information damages differentiation similar to the classic finding that behavior based price discrimination intensifies price competition with endogenous product design there is yet a second peril it emerges when forward looking firms try to avoid the first peril by suppressing the information value of purchase histories ideally if a market leader serves all consumers on day 1 purchase histories contain no information about consumer preferences however knowing that their rivals are willing to accommodate a market leader firms are more likely to offer a mainstream design at day 1 which jeopardizes differentiation based on this understanding i investigate how the perils of behavior based personalization change under alternative market conditions such as firms better knowledge about their own customers consumer loyalty and inertia consumer self selection and the need for classic designs

sectoral effects of a green tax reform in portugal abstract economic downturn coupled with serious and persisting environmental problems require a new regulation system to tackle these problems the portuguese government created the commission for the green tax reform in 2014 following the guidelines of the european union in the sense that fiscal policy should contribute to public budget consolidation and sustainable growth the commission was commissioned to propose a simplification of taxation in order to promote economic competitiveness environmental sustainability and the efficient use of resources the aim of this paper is to present the results from one of the teams that have contributed to the commission for the green tax reform we have followed the european commission guidelines in order to simulate a green tax reform with a static general equilibrium model and aligned to the political context we found that i it is possible to enjoy a positive double dividend ii to achieve improvements in the energy trade balance and energy independence and iii to reduce the energy intensity of the portuguese economy

the anatomy of emergence with a focus upon capital formation abstract emergence is a unifying theme of both evolutionary economics and complex systems theory in spite of this centrality emergence in economics has not been subject to an extensive critical analysis this paper remedies this deficit we identify several conditions that economic patterns i e rule systems structures must satisfy to qualify as emergent 1 material realization emergent patterns are realized in physical structures and processes 2 coherence pattern is not a mere aggregate but a systemic whole 3 non distributivity pattern possesses global properties absent from its parts 4 structure dependence systemic properties depend upon connective structure these four core features are common to all forms of emergence in economics evolutionary economic systems also exhibit extra strength versions of emergence which require that patterns possess one or more additional features 5 genuine novelty 6 unpredictability in principle and 7 irreducibility we introduce three basic forms of emergence that occur in economic systems minimal diachronic and synchronic emergence and apply these ideas to capital formation at all levels of economic order the economy wide capital structure exhibits strongly emergent properties both diachronic and synchronic that depend on its structural and functional organization it is not a mere aggregate of capital goods within the realm of capital phenomena we also compare the distinguishing characteristics of emergent and spontaneous self organizing orders we provide a case study of the iphone as an emergent capital pattern to illustrate conditions 1 7 above and the different types of emergence

endogenous quality choice price vs quantity competition two versions of a vertical product differentiation model one with fixed and the other with variable costs of quality are analyzed to study how the hypotheses of price versus quantity competition affect equilibrium solutions product differentiation arises under all the scenarios considered contrasting previous findings of symmetric quality choices under cournot behavior however to relax harsher market competition firms differentiate more under bertrand than under cournot a simple welfare measure also indicates that the economy is better off when firms compete on prices with fixed costs of quality not only consumer but also producer surplus is higher under price competition copyright 1993 by blackwell publishing ltd

product line competition customization vs proliferation we study a market with customers who have heterogeneous preferences for product attributes we consider two types of firms that compete on price and product variety a traditional firm which chooses a limited set of product configurations and a customizing firm which can produce any configuration to order the traditional firm carries product inventories and experiences a lead time delay the customizing firm does not carry inventory and its customers incur waiting costs until they receive their orders we assume that the customizing firm has limited capacity in the short run e g when it does not outsource production to high volume manufacturers we derive the equilibrium for a duopoly competition between the customizing firm and the traditional firm study its characteristics and compare it to a monopoly we characterize conditions that favor customization under competition we find that the customizing firm s profit is not monotone in the market size and its ease of customization similarly a

add on pricing by asymmetric firms this paper uses an analytical model to examine the consequences of add on pricing when firms are both horizontally and vertically differentiated and there is a segment of boundedly rational consumers who are unaware of the add on fees at the time of initial purchase we find that consumers who know the add on fees can be penalized and increasingly so by the existence of boundedly rational consumers our consideration of quality asymmetries on base goods and add ons plus the inclusion of boundedly rational consumers leads to several novel findings regarding firm profits when quality asymmetry is on base goods only and with boundedly rational consumers add on pricing can diminish profit for a qualitatively superior firm and increase profit for an inferior firm i e a lose win result compared to when add on pricing is prohibited or infeasible when quality asymmetries exist on both base goods and add ons and without boundedly rational consumers the opposite win lose result prevails when quality asymmetries exist on both base goods and add ons and with boundedly rational consumers the result can be win win win lose or lose win depending on the magnitude of quality differentiation on add ons this paper was accepted by j miguel villas boas marketing

personalized pricing and quality differentiation we develop an analytical framework to investigate the competitive implications of personalized pricing pp whereby firms charge different prices to different consumers based on their willingness to pay we embed pp in a model of vertical product differentiation and show how it affects firms choices over quality we show that firms optimal pricing strategies with pp may be nonmonotonic in consumer valuations when the pp firm has high quality both firms raise their qualities relative to the uniform pricing case conversely when the pp firm has low quality both firms lower their qualities although many firms are trying to implement such pricing policies we find that a higher quality firm can actually be worse off with pp while it is optimal for the firm adopting pp to increase product differentiation the non pp firm seeks to reduce differentiation by moving in closer in the quality space while pp results in a wider market coverage it also leads to aggravated price competition between firms because this entails a change in equilibrium qualities the nature of the cost function determines whether firms gain or lose by implementing such pp policies despite the threat of first degree price discrimination we find that pp with competing firms can lead to an overall increase in consumer welfare

pricing and promotions in asymmetric duopolies this paper develops a modeling framework for making promotions decisions in contrast to some of the prior research the framework explicitly models promotions its central feature is the view of promotions competition as a multistage game in which regular prices are chosen first followed by the choice of promotion depths and frequencies it is used to illustrate the nature of competition between a national brand and private label in equilibrium the national brand promotes to ensure that the private label does not try to attract consumers away from the national brand moreover the private label does not promote this equilibrium is also contrasted with varian s framework used by other researchers in which mixed strategy equilibrium prices are interpreted as promotions

on the basing point system reply david d haddock s 1990 contention is really that the jacques f thisse and xavier vives 1988 and the bruce l benson melvin l greenhut and george norman 1990 papers do not provide a collusive model that yields base point pricing bpp he apparently believes his paper 1982 established competitive bpp and suggests in 1990 that the collusive model and hard empirical work alone remain however no collusive model is required since it has already been well demonstrated in the literature on plant location and spatial price theory that firms at feasible distance locations from a production center would accept bpp only because they fear that to do otherwise would subject them to retaliatory actions by the larger more powerful firms at the production center moreover the paper by thisse vives 1988 henceforth tv and benson greenhut norman 1990 henceforth bgn indicated sufficiently that other systems would arise than haddock s competitive bpp especially since the restrictive conditions necessary for the latter militate against its use haddock in fact appears to accept these conditions in his references to arthur r burns proposals 1936 of nearbase point pricing nbpp hard empirical analysis would indeed be in order in determining the extent of nbpp not competitive bpp this paper responds to the above noted issues in three main sections section i briefly provides some historical data on the collusive uses of bpp for any future researcher who seeks empirically to uncover a

product differentiation with consumer arbitrage abstract we determine the equilibrium to a game where two firms set delivered price schedules and consumers simultaneously declare where they want to take delivery of the product equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties but rather to purchase more standard varieties this behavior may decrease market diversity the demanded varieties tend to agglomerate around the market center we also show that it is efficient for the cost of adapting the product to consumers to be shared through arbitrage but oligopoly gives rise to an inefficient level of personal arbitrage

should mobile marketers collect data other than geo location we take today s mobile marketing data landscape as a starting point and consider a duopoly model of third degree price discrimination in which firms can complement geo location information with data on consumer flexibility of varying quality we show that depending on consumer heterogeneity higher quality flexibility data affect profits according to three different patterns in equilibrium both firms tend to acquire data if the data are of high quality while only one acquires data if the data quality is low firms are likely to gain from additional data if consumers have similar preferences and or when data are precise although social welfare weakly improves consumers can be harmed

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

spatial price discrimination and merger the n firm case the consequences of merger are analyzed in an n firm model of spatial price discrimination the merger occurs with known probability after location decisions have been made the possibility of merger alters locations generates inefficiency and increases the profit of the merging firms in the case of corner mergers but never in the case of interior mergers the possibility of merger may also reduce the profit of the excluded firms