On the Strategic Choice of Spatial Price Policy

Jacques Thisse and Xavier Vives

American Economic Review, 1988, vol. 78, issue 1, 122-37

Abstract: 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.

Date: 1988
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Working Paper: On the strategic choice of spatial price policy (1987)
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