Nonlinear pricing in spatial oligopoly

Hamilton, Jonathan

doi:10.1007/bf02499142

Cited by 11 publications

(9 citation statements)

References 9 publications

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“…However, some authors have addressed the problem faced by firms when demand is not known. Stole (1995), Hamilton and Thisse (1997) and Pires and Sarkar (2000) consider second degree price discrimination through the use of nonlinear pricing in an oligopoly setting where firms are spatially differentiated. In these papers the optimal pricing policies are obtained under the assumption that firms may commit themselves to a pricing strategy before consumers make their purchase decision, and this assumption may be appropriate in many circumstances (firms might commit themselves to prices through announcements in newspapers, catalogs, etc.).…”

Section: Introductionmentioning

confidence: 99%

Product differentiation with consumer arbitrage

Aguirre

Espinosa

2004

International Journal of Industrial Organization

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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.

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Section: Introductionmentioning

confidence: 99%

Product differentiation with consumer arbitrage

Aguirre

Espinosa

2004

International Journal of Industrial Organization

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“…The recent policy stance 7 strongly acts upon its distribution sector stopping the practices upon which car manufacturers rely to prevent arbitrage (therefore acting upon a crucial feature for price discrimination). Although not acting upon price regulation, the economic justification of the European Commission is the need to create more competition working to the advantage of European consumers: claiming that "the consumer should be in the driver's seat", to build a single market may put pressure on price differentials 8 .…”

Section: Introductionmentioning

confidence: 99%

“…In our model this characteristic is location. 7 For more details see the new Block Exemption Regulation 1400/2002 -17 July 2002. 8 Brenkers and Verboven (2002) discuss the impact on competition from liberalizing the European car market distribution system and show empirically that there may be a reduction in international price discrimination and price differentials.…”

Section: Introductionmentioning

confidence: 99%

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Delivered Versus Mill Nonlinear Pricing in Free Entry Markets

Jorge¹,

Pires

2004

SSRN Journal

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This paper discusses a model where consumers simultaneously differ according to one unobservable (preference for quality) and one observable characteristic (location). In these circumstances nonlinear prices arise in equilibrium. The main question addressed in this work is whether firms should be allowed to practise different nonlinear prices at each location (delivered nonlinear pricing) or should be forced to set an unique nonlinear contract (mill nonlinear pricing). Assuming that firms can costless relocate, we show that the free entry long-run number of firms may be either smaller, equal, or higher under delivered nonlinear pricing. In addition, we show that delivered nonlinear pricing yields in the long-run higher welfare and, consequently, our results support the view that discriminatory nonlinear pricing should not be prohibited.

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“…The difference in types gives a rationale for non-linear contracts, while the horizontal dimension is used to control for the intensity of price competition. It should be noted that previous work has been done on the symmetric case of unobservable horizontal parameters and observable vertical ones (Spulber, 1989;Hamilton and Thisse, 1997), while the case dealt by this paper has not been studied before, with the exception of Stole (1995). 2 In the context of the model analysed in this paper, oligopolistic interaction between firms can be reduced to reformulating the individual rationality constraints that become type-dependent.…”

Section: Introductionmentioning

confidence: 99%

Price discrimination and price dispersion in a duopoly

Valletti

2000

Research in Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-technical abstractThis paper addresses the problem of price discrimination in an oligopoly context where firms have imperfect information about consumers' characteristics. The economics of price discrimination under imperfect information is well understood under monopoly conditions but not entirely under oligopoly. The purpose of the paper is to characterise competition between two rival firms that offer discriminatory contracts. The problem is addressed in a stylised market where consumers have heterogeneous preferences both over a horizontal parameter (brand) and a vertical one (quality). The difference in consumer types over the vertical parameter gives a rationale for non-linear contracts, while the horizontal dimension is used to control for the intensity of price competition.Discriminatory contracts are characterised for different market structures: monopoly, collusive duopoly and competitive duopoly.Matters are more complex in an oligopolistic setting that under monopoly because the presence of more than one firm gives the customer the right to buy products from different suppliers. In a competitive environment, contracts should not only perform the standard function as a screening device that gives the right incentive to customer to reveal their type, but also they should not give room to rivals. Since firms typically differ in the relative appeal to customers, I study the properties of equilibrium contracts with different intensity of competition.In the context of the model analysed, I show that oligopolistic interaction between firms can be reduced to reformulating the participation constraints that become typedependent, so that the solution can be thought of as a monopolist's problem with nonstandard binding constraints. It is shown how there are three different mechanisms at work according to the intensity of competition. When competition from a rival is very mild, the basic discriminatory mechanism is the same one as under monopoly, and competition simply redistributes surplus. When competition becomes more intense, the presence of a rival good diminishes the screening ability of an incumbent firm, so that there are also efficiency gains. In particular, quality distortions are reduced so that prices can go up, reflecting higher product quality. Finally, any distortion is eliminated and no screening is possible when brand preferences are not too strong or consumer heterogeneity over vertical parameters is suffic...

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Nonlinear pricing in spatial oligopoly

Abstract: D43, D82, C72, L42, Competing principals, Nonlinear pricing, Spatial competition,

Cited by 11 publications

References 9 publications

Product differentiation with consumer arbitrage

Product differentiation with consumer arbitrage

Delivered Versus Mill Nonlinear Pricing in Free Entry Markets

Price discrimination and price dispersion in a duopoly

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