Price Discrimination and Spatial Market Structures

Abstract

This study compares price discrimination and uniform pricing in a spatial market of the Hotelling type. At first spatial monopoly is studied to compare with the case of spatial monopolistic competition, which shows that price discrimination requires different sorting mechanism depending on the type of market structures. The study shows in particular some positive results of spatial monopolistic competition, comparing market shares, prices and output under the two pricing policies. If consumers are sorted according to the strengths of their brand preferences, their welfare increases even without any quantity increase. Moreover, most consumers may be better off under price discrimination than they are under uniform pricing if differences in strengths of brand preference are large enough.