Abstract
Reinterpreting Hwang-Mai (AER, 1990) by both simplifying and generalizing their analysis in terms of two key demand parameters representing income and market size, we probe the welfare effects of spatial price discrimination to determine how robust the previous welfare findings in the literature are. Endogenous location matters when a monopolist chooses asymmetric location under different pricing schemes. If he/she remained at the same location, outcomes of fixed and endogenous location models must be analytically the same. Endogenous and different location changes outcomes radically. When non-discriminatory pricing regulations benefit the poor, different transportation burdens mean that the rich become poor, even worse off than the ex-poor, and the society becomes worse off accordingly.
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We are grateful to two anonymous referees for their useful comments and critiques. The third author also wants to express his gratitude for invitation to Tamkang University on their Chair Lecture program, 2006, which has led to the present inquiry among others.
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Hwang, H., Mai, CC. & Ohta, H. Who Benefits from Pricing Regulations When Economic Space Matters?. JER 61, 218–233 (2010). https://doi.org/10.1111/j.1468-5876.2009.00484.x
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DOI: https://doi.org/10.1111/j.1468-5876.2009.00484.x