Spatial Price Discrimination and Privatization on Vertically Related Markets

Konstantinos Eleftheriou and Nickolas Michelacakis

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a vertically structured market with two retail firms of mixed ownership competing against each other exercising spatial price discrimination. We examine the strategic behavior of downstream rivals as well as the effect of privatization on the intensity of competition and welfare in two cases; when location decisions are taken sequentially and when location decisions are taken simultaneously. We show that production cost differentials are crucial in determining the Nash equilibrium locations (hence market shares) and the impact of the degree of privatization on the level of downstream competition. Privatization leads to stiffer competition when the mixed ownership firm has the cost advantage. However, it can be welfare enhancing only when decisions are taken sequentially with the follower being the semi-public firm having a moderate production cost advantage over the market leader. The results of our model generalize to capture the case of vertical mergers.

Keywords: mergers; mixed oligopoly; privatization; spatial competition (search for similar items in EconPapers)
JEL-codes: L13 L33 L42 R32 (search for similar items in EconPapers)
Date: 2017-02-19
New Economics Papers: this item is included in nep-bec, nep-com, nep-geo, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:76964

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