Price Discrimination and Equilibrium in Monopolistic Competition

W. Bentley Macleod, G. Norman and Jacques Thisse

No 275211, Queen's Institute for Economic Research Discussion Papers from Queen's University - Department of Economics

Abstract: Modern theories of monopolistic competition have borrowed extensively from techniques developed in location theory and the theory of spatial pricing: the monopolistically competitive firm is assumed to choose a "location" and price for its product. A subject that has been of increasing concern in this corpus of theory is that there exists no free-entry price-location equilibrium. In this paper we demonstrate that free-entry price-location equilibrium exists provided only that producers are allowed to price discriminate among customers in a reasonable manner. Equilibrium is modelled as a two-stage game using the Selten concept of subgame perfect Nash equilibrium. It is shown that the equilibrium discriminatory price system is one initially identified by Hoover. In addition, we show that equilibrium is not unique. The precise nature of equilibrium in a particular market will be dependent upon the history of that market.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 34
Date: 1987-12
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https://ageconsearch.umn.edu/record/275211/files/QUEENS-IER-PAPER-701.pdf (application/pdf)

Related works:
Working Paper: Price discrimination and equilibrium in monopolistic competition (1992)
Journal Article: Price discrimination and equilibrium in monopolistic competition (1988)
Working Paper: Price discrimination and equilibrium in monopolistic competition (1988)
Working Paper: Price Discrimination and Equilibrium in Monopolistic Competition (1987)
Working Paper: Price discrimination and equilibrium in monopolistic competition (1985)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:queddp:275211

DOI: 10.22004/ag.econ.275211

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