Spatial Monopoly and Spatial Monopolistic Competition with Two-Part Pricing

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This paper develops a model of spatial price discrimination by two-part pricing when bearing freight and nonlinear pricing are impossible. The two-part tariff comprises a membership fee and a price per visit. When fixed costs per store are low, a monopolist makes membership compulsory and builds stores too close together. With higher fixed cost, the monopolist offers consumers a choice between membership and nonmembership, and builds stores too far apart. Nearby consumers become members, more distant consumers nonmembers. Competition leads to closer spacing than monopoly, and lower welfare except at high levels of fixed cost per store. Copyright 1988 by The London School of Economics and Political Science.