Melvin L. Greenhut

The Economics of Imperfect Competition: A Spatial Approach

List of figures and tables Preface 1. Introduction Part I. Nondiscriminatory Pricing: 2. A general theory of imperfect competition and nondiscriminatory pricing: the short run 3. A general theory of imperfect competition and nondiscriminatory pricing: the long run 4. Nondiscriminatory prices, economic development, and merger policies 5. Product differentiation: a spatial f.o.b. perspective Part II. Discriminatory Pricing: 6. Discriminatory pricing and alternative demand conditions 7. Alternative pricing policies 8. Discriminatory pricing and market overlap 9. Intraindustry trade: a spatial approach 10. Optimal pricing with delivered-price or transport constraints 11. International and intranational pricing with a general cost function: an introduction to optimal-control theory 12. Dynamic market strategy: further application of optimal-control theory 13. Heterogeneous prices and heterogeneous goods 14. Empirical findings on alternative pricing policies: demand and competitive impacts Part III. Pricing, Location, and Competition: 15. General location and market-area principles 16. Pricing, demand distribution, and location choice 17. Optimal location in nonspatial markets: a spatial approach 18. Competition, free entry, and long-run profit 19. An efficient long-run allocative equilibrium 20. Long-run locational equilibrium 21. Epilogue Notes Bibliography Author index Subject index.

Spatial Price Discrimination, Competition and Locational Effects

Spatial price theory has typically assumed homogeneous gross demand curves among buyers who are dispersed over an economic landscape. Subtracting varying costs of distance to their locations yields a set of heterogeneous net demand curves. Any spatial monopolist subject to these conditions faces separable markets which are characterized by different effective demands. As a result price discrimination is feasible, and in theory straight-lined delivered price schedules of less than unit slope per unit cost of distance are customarily derived. But do spatial competitors ever discriminate (or appear to discriminate) over economic space? And if they do, what is the form of their delivered price schedules? Would their schedules also be linear given the same demand conditions that generate linear schedules for a discriminating monopolist? Without answering questions such as those raised above anti-trust regulations dealing with unfair price practices and, in particular, the determination of what is legal or illegal, ethical or not, cannot be readily accepted by economists. The present paper is designed to provide a basis for answering such questions by uncovering selected properties of spatial price discrimination under conditions of varying intensities of competition over an economic space. More generally, the paper is designed to determine the effect on prices of rival locations and the intensity of their competition. Sharp contrasts between spaceless and spatial price theory will thus be drawn, with competitive differences over the sellers trading area being revealed to generate differential discriminatory prices over the landscape. [Авторский текст]

Spatial Pricing in the United States, West Germany and Japan

This paper investigates the spatial pricing policies of a sample of firms in the United States, West Germany and Japan. We begin in Section I by providing general results for the three countries. These suggest that f.o.b. pricing is the exception rather than the rule. Furthermore, there appear to be significant differences between the countries in the degree of spatial price discrimination. The remainder of the paper examines whether the inter-country differences in spatial discrimination can be explained by a theory of spatial pricing. Section II uses the theory of spatial pricing proposed in Greenhut and Greenhut (1975) to derive an operational model. In Section III the parameters of this model are estimated from the individual country data and the results are discussed. Section IV presents the conclusions. The data used in this study were obtained from a survey of firms in the three countries. In each country target regions were selected with (a) similar urban-rural proportions, as restricted by (b) existing acquaintanceships with professors in or near these urban-rural centres. Survey constraint (b) was imposed after a mailed questionnaire pilot study in the United States had indicated a likely need for follow-up mailings, phone calls and even interviews before a sufficient number of responses from a particular place (e.g., a particular state in the United States) could be expected. After selecting our comparable survey areas, firms were picked at random from industrial lists of business establishments in each country, and questionnaires were mailed to them. The questionnaire is reproduced in the Appendix. The firms that returned questionnaires were compared to non-responding firms. No distinction in size of firm, industry type or location was apparent for any country or sub-region studied. Among the respondents, we dropped from the sample all firms that were not subject to a significant freight cost (defined to be a 5 per cent minimum freight cost to delivered cost ratio on sales to at least one distant market point). Our findings on pricing strategies are summarized in Table 1. Firms in the United States tend to price discriminatorily. Of 174 sampled firms, less than one-third priced non-discriminatorily (f.o.b.). The spokesmen for the remaining firms (67 per cent) admitted that they did not add full freight cost to their mill price on all of their distant sales. These firms therefore priced discriminatorily. The tendency to price discriminatorily is even greater in West Germany and Japan, with the percentage of discriminating firms approximately

Spatial Pricing Patterns in the United States

This paper is an empirical extension of spatial price theory with results being established by selected statistical approaches, namely multiple linear regression and Chows test. The locational pattern of competitors as well as varying intensities of competition at different spatial market points are found to play dominant roles in determining the pricing patterns of American firms. Differences in the price practices of firms of different states are identified, and price discrimination over geographic space is found to be the most prevalent pricing technique.

Impacts on optimum location of different pricing strategies, market structures and customer distributions over space

Abstract This paper considers the ways in which pricing policies will affect location choice in both monopolistic and duopolistic markets. It is shown that the monopolists optimal location depends crucially on the shapes of demand and delivery cost functions and the pricing policy applied. The median location is unlikely to be chosen. With spatial competition, pricing strategies also affect location choice. There will be greater production concentration under f.o.b. or uniform delivered pricing than under optimal discriminatory pricing. For certain consumer distributions, Hotelling-type concentration is to be expected whereas collusion will lead to some dispersion of production.

Spatial Pricing with a General Cost Function; the Effects of Taxes on Imports

One of the authors of this paper referred some years ago, in a somewhat different context, to a mislaid maxim in the hope that the maxim in question will not be permanently mislaid [Greenhut and Ohta (1976) p. 267]. Much the same hope can be expressed with respect to one of our objectives in this paper. It is a familiar principle in microeconomics that specific (or unit) taxes act somewhat differently from ad valorem taxes although we would suggest that the full extent of this difference has not been investigated. There is also the suggestion in international trade theory that tariff barriers, and by implication local sales taxes, operate very much like transport costs and so can be analyzed like transport costs; in particular, just as we might expect spatial price discrimination through freight absorption, so we can expect spatial price discrimination through tariff (or sales tax) absorption. What is not made clear is that there is a potential conflict between these two accepted wisdoms, determined by whether the tariff or sales tax is specific or ad valorem. We examine this conflict in some detail in this paper. We shall show that just as the profit maximizing producer can be expected to absorb some proportion of transport costs, so we can also expect him to absorb some proportion of the tariffs (or taxes) to which his goods are subject. But, the precise nature of tariff absorption depends crucially on the particular tariff barriers that exist. Only specific tariffs impact the same way as do transport costs. Ad valorem tariffs will be shown to have a very different effect; they will appear, at least in part, as a change in convexity of the individual demand function. A related objective of the paper, and one with which we shall deal first in the analysis, is to show how an optimal spatial pricing rule can be derived when marginal production costs take a general form. The analysis of spatial competition and of spatial price discrimination has relied quite heavily on the assumption of constant marginal production costs. It follows naturally from this assumption that the price/quantity decisions applicable to a market at location i are independent of the price/quantity decisions at location j. The optimal discrimination pricing policy over a series of distinct markets under conditions of constant marginal production costs would be the one that maximizes profit at each market point. What happens when this assumption is relaxed? Consider the simple example

Towards a general theory of public and private facility location

Theories of public facility locations have followed a rather haphazard pattern. The prevailing “emptiness” reflects the varying kinds of public facilities requiring location. It also reflects the personal-social behavioral basis which underscores selection of public facility locations. The present paper sets forth a new approach along the lines of welfare economics towards the end of determining the factors (such as demand, cost, welfare (or utility), etc.) which underscore public facility location patterns. In the process of developing our model, the approach is shown to dovetail with that applicable to locations of private enterprises. What in many respects is a general theory of facility location is thereby established herein.

Industrial structures components of finance theory's CAPM

A microeconomic pricing model is developed which explains the effects of industrial structures on profit margin and equity beta values. The model is placed into special use by illustrating what may appear to be contradictions in the stock prices and betas of specific companies, differences which are explained however by the theory that supports our model. The industrial organization theory established in the paper would therefore extend Finance Theorys Capital Asset Pricing Model. Many testable propositions which could disconfirm or fail to disconfirm certain facets of, if not the papers basic theory, are set forth descriptively.

Fuzzy set underpinnings of oligopoly markets

This paper describes the natural links between fuzzy sets and oligopolistic markets. Fuzzy sets are used as a tool to define and describe oligopoly markets and to demonstrate quantitatively the uncertainty intrinsic to oligopolistic industries. The values of oligopolistic uncertainty are calculated by utilizing a fuzzy entropy measure. Significant distinctions between fuzzy results and the crisp number calculus are emphasized.<<ETX>>

Differences in Spatial Pricing in the United States: A Statistical Analysis and Case Studies

This paper focuses attention on spatial pricing patterns of American firms. It identifies price strategies by statistical comparison of firms in Colorado with those located elsewhere in the United States. Competitive factors are found generally to dominate the pricing schedules of firms in other states, while the pricing schedules of Colorado firms are found to be influenced chiefly by demand patterns. Multi-product case examples are presented which spotlight pricing differences between firms located in a distributional-center type of state, such as Colorado, and those in other states. The cases also help explain why certain variables were uniquely important in Colorado.