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Spatial price discrimination in the spokes model

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Microsoft Word - EDP-1117 Economics Discussion Paper Series EDP-1207 Spatial price discrimination in the spokes model Carlo Reggiani February 2012 Economics School of Social Sciences The University of Manchester Manchester M13 9PL Spatial price discrimination in the spokes model Carlo Reggiani� February 2012 Abstract The spokes model allows addressing non-localized spatial competition between rms. In a spatial context rms can personalize their product and price discrim- inate using location-contingent pricing. Non-localized competition implies that neighbouring e¤ects are not relevant to rms. This paper analyses spatial price discrimination and location choices in the spokes model. Highly asymmetric loca- tion patterns are a very likely outcome: rms either supply a generally appealing product line or focus on a speci c niche. Moreover, multiple equilibriums can arise so that the location patterns do not always globally minimize the sum of transportation costs. JEL code: D43, L11, L13. Keywords: spatial price discrimination, spokes model, optimal location. 1 Introduction Price discrimination is a pervasive practice in many markets: it takes place both in highly concentrated markets and also in more competitive ones, in which several rms are active. Price discrimination also arises in markets strongly characterized by a spatial dimension. A feature of these markets is that competition is not necessarily localized: rms compete to attract a consumer not only with neighbouring rms but �School of Social Sciences, University of Manchester, Manchester M13 9PL, UK. E-mail: [email protected] I wish to thank Hemant Bhargava, Anindya Bhattacharya, John Bone, Ramon Caminal, Bipasa Datta, Norman Ireland, Mario Pezzino, Alejandro Saporiti, Peter Simmons, Klaus Zauner and seminar participants in Braga, Manchester, York, the IO Workshop in Lecce, the EARIE Annual Meeting in Ljubljana and

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