Spatial Price Discrimination and Privatization on Vertically Related Markets

Eleftheriou, Konstantinos and Michelacakis, Nickolas (2017): Spatial Price Discrimination and Privatization on Vertically Related Markets.

Abstract

We consider a vertically structured market with two retail firms of mixed ownership competing against each other exercising spatial price discrimination. We examine the strategic behavior of downstream rivals as well as the effect of privatization on the intensity of competition and welfare in two cases; when location decisions are taken sequentially and when location decisions are taken simultaneously. We show that production cost differentials are crucial in determining the Nash equilibrium locations (hence market shares) and the impact of the degree of privatization on the level of downstream competition. Privatization leads to stiffer competition when the mixed ownership firm has the cost advantage. However, it can be welfare enhancing only when decisions are taken sequentially with the follower being the semi-public firm having a moderate production cost advantage over the market leader. The results of our model generalize to capture the case of vertical mergers.

• Item Type: MPRA Paper
• Language: English
• Keywords: mergers; mixed oligopoly; privatization; spatial competition
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out; L - Industrial Organization > L4 - Antitrust Issues and Policies > L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts; 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

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