Strategic delegation in spatial price discrimination mixed duopoly; Nash is consistent at the presence of a public firm

Michelacakis, Nickolas (2021): Strategic delegation in spatial price discrimination mixed duopoly; Nash is consistent at the presence of a public firm.

Abstract

We consider a mixed ownership duopoly delegation model with spatial price discrimination and constant, albeit different, marginal production costs. In contrast to what holds true for a private duopoly, the Nash equilibrium, absent delegation, for a mixed duopoly with discriminatory pricing according to location is both consistent and socially optimal. We find that under Nash conjectures, in most cases, firm owners have a strong incentive to delegate location decisions to managers. In such cases, firms locate closer to each other. The intensity of the competition leads to lower prices, lower profits, for both firms, and increased surplus for the consumer.

• Item Type: MPRA Paper
• Language: English
• Keywords: mixed duopoly; delegation; spatial competition; consistent conjectures; 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; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; 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

T.F. Bresnahan. Duopoly models with consistent conjectures, {\em American Economic Review} {\bf 71}(5) (1981), 934--945.

L.M.B. Cabral. Conjectural variations as a reduced form, {\em Economics Letters} {\bf 49} (1995), 397--402.

K. Eleftheriou and N.J. Michelacakis. A unified model of spatial price discrimination, {\em Managerial and Decision Economics} {\bf 41}(7) (2020), 1202--1210.

C. Fershtman and K.L. Judd. Equilibrium incentives in oligopoly, {\em American Economic Review} {\bf 77} (1987), 927--940.

J.S. Heywood and Z. Wang. Strategic delegation under spatial price discrimination, {\em Papers in Regional Science} {\bf 95} (2014), 193--213.

J.S. Heywood and Z. Wang. Consistent location conjectures under spatial price discrimination, {\em Journal of Economics} {\bf 117} (2016), 167--180.

E.M. Hoover. Spatial price discrimination. {\em Review of Economic Studies} {\bf 4} (1937), 182--191.

P.J. Lederer and A.P. Hurter. Competition of firms: discriminatory pricing and location, {\em Econometrica} {\bf 54} (1986), 623--640.

A. Lerner and H. Singer. Some notes on duopoly and spatial competition, {\em Journal of Political Economy} {\bf 45} (1937), 145--186.

S. Sklivas. The strategic choice of managerial incentive, {\em Rand Journal of Economics} {\bf 18} (1987), 452--458.

J. Vickers. Delegation and the theory of the firm, {\em Economic Journal} {\bf 95} (1985), 138--147.