Endogenous location and pricing policy: mixed strategies make uniform pricing commitment successful

Aguirre, Iñaki (2026): Endogenous location and pricing policy: mixed strategies make uniform pricing commitment successful.

Abstract

We study the strategic choice of spatial price policy (uniform pricing versus spatial price discrimination) in a linear city with quadratic transport costs and endogenous locations, under two alternative three-stage game orderings (following Eber, 1997). The asymmetric subgame (in which one firm discriminates while the other prices uniformly) is solved via the mixed-strategy Nash equilibrium under simultaneous price competition, replacing the Stackelberg standard of Thisse and Vives (1988). In Game I (location-pricing policy-prices), the policy game is a coordination game: both are Nash equilibria but mutual uniform pricing Pareto dominates mutual discrimination. This overturns the Prisoner’s Dilemma that arises under the Stackelberg standard, in which price discrimination is a dominant strategy. In Game II (pricing policy-location-prices), mutual uniform pricing is the unique equilibrium.

• Item Type: MPRA Paper
• Language: English
• Keywords: Price Discrimination, Prisoner’s Dilemma, Location Choice, Mixed-Strategy Nash Equilibrium.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R32 - Other Spatial Production and Pricing Analysis

References

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