Product Differentiation with Consumer Arbitrage

Iñaki Aguirre () and Maria Paz Espinosa ()

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

Abstract: We analyze the consequences of consumers behavior concerning personal arbitrage in a spatial discrimination context where firms know the consumers distribution but cannot distinguish them by location. The firms' equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties of products but rather to purchase more standard varieties. This behavior may explain a decrease in observed market diversity: the demanded varieties tend to agglomerate around the center of the market. We also deal with efficiency in the presence of personal arbitrage and show that it is efficient that the cost of adapting the product to the consumers needs be shared through arbitrage, but oligopoly gives rise to an inefficient level of personal arbitrage.

Keywords: spatial price discrimination; product differentiation; personal arbitrage. (search for similar items in EconPapers)
JEL-codes: D82 L13 R32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-mic
Date: 2003-03-11
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Working Paper: Product Differentiation with Consumer Arbitrage (2003)
Journal Article: Product differentiation with consumer arbitrage (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:ehu:biltok:200304

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Dpto. de Econometría y Estadística, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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