Location choices and third‐degree spatial price discrimination. (9th January 2018)

• Record Type: Journal Article
• Authors: Feng, Hong; Ma, Jie
• Is Part Of: Scottish journal of political economy. Volume 65:Number 2(2018)
• Page Start: 142
• Page End: 153
• Publication Date: 2018-01-09
• Subjects: Great Britain -- Economic conditions -- 1945-1964 -- Periodicals; Great Britain -- Economic conditions -- 1964-1979 -- Periodicals; Great Britain -- Economic conditions -- 1979-1997 -- Periodicals; 330.9411005
• DOI: 10.1111/sjpe.12165
• Languages: English
• ISSNs: 0036-9292

Abstract

Abstract: This paper studies how firms choose their product differentiation levels when they engage in third‐degree price discrimination in the following product market competition in a location‐price model. We show that firms will not choose to locate at the two endpoints if different consumer groups have similar sizes. Hence, the principle of maximum differentiation does not hold, resulting in a more intense product market price competition. Only if the size of one group of consumers is sufficiently larger than that of the other group, would firms make their products as differentiated as possible by choosing the two endpoints as their locations.