On the strategic choice of spatial price policy: the role of the pricing game rules

Iñaki Aguirre () and Ana M. Martin ()
Additional contact information
Ana M. Martin: Departamento de Econometria y Estadistica (Economia Aplicada III), Universidad del Pais Vasco, Spain
Authors registered in the RePEc Author Service: Martín Arroyuelos Ana María

BILTOKI from Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística)

Abstract: In this paper, whe show that the strategic choice of spatial price policy under duopoly crucially depends on the rules of price competition. Thisse and Vives (1988) show that spatial price discrimination is a dominant strategy when the mill pricing firm is the leader and the discriminatory firm is the follower. When the leader-follower roles are reversed we find that equilibrium pricing policies depend on the consumer's reservation value. The pricing policy game has two equilibria in pure strategies, either both firms price uniformly (f.o.b.) or both firms price discriminate, when the reservation value is low. For intermediate levels of the reservation value, price discrimination is a dominant strategy and the pricing policy game is similar to a Prisoner's Dilemma. When the consumer reservation value is large enough we obtain asymmetric equilibria in which one firm prices according to f.o.b. and the other price discriminates. We also analyze the case of simultaneous price competition and find a mixed strategies equilibrium for the price competition subgame such that the pricing policy game has two equilibria in pure strategies, either both firms price uniformly or both firms price discriminate.

Keywords: Spatial Price Discrimination; Price Policy. (search for similar items in EconPapers)
JEL-codes: L12 R32 (search for similar items in EconPapers)
Date: 2001-02-19
View list of references

Downloads: (external link)
http://www.ea3.ehu.es/s0038-con/es/contenidos/info ... djuntos/dt200104.pdf (application/pdf)

Related works:
Journal Article: On the strategic choice of spatial price policy: the role of the pricing game rules (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ehu:biltok:200104

Ordering information: This working paper can be ordered from
Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

Access Statistics for this paper

More papers in BILTOKI from Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística)
Contact information at EDIRC.
Series data maintained by Ainhoa Zarraga ().