Three Essays on the Economics of Spatial Price Discrimination: Strategic Delegation Under Spatial Price Discrimination ; Consistent Location Conjectures Under Spatial Price Discrimination ; How to License a Transport Innovation

Abstract

This dissertation consists of three papers that use models of spatial price discrimination to explore issues of long-standing interest in microeconomics. The first essay introduces strategic delegation into the traditional model of spatial price discrimination. In both simultaneous and sequential location cases, delegating location choices to managers causes firms to move toward each other. This movement typically reduces social welfare. While exceptions exist for high cost convexity and for some cases of elastic demand, this reduction reverses the increase in welfare associated with delegation in common quantity games outside the spatial context. The second paper uniquely explores consistent location conjectures in a model of spatial price discrimination. With linear production cost, firms locate too close to the center resulting in reduced social welfare relative to Nash conjectures. Thus, the frequent association of spatial price discrimination with efficiency vanishes when firms anticipate their rival's response. With quadratic production cost, the firms continue to locate closer to the center but the degree of convexity determines whether or not welfare increases or decreases relative to Nash. The third paper identifies the optimal method to license an innovation that reduces transport cost in a model of duopolists engaging in spatial price discrimination. An inside innovator finds licensing by either a typical fixed fee or an output royalty to be unprofitable. Instead, a fee based on distance is shown to be a profitable option. An outside innovator finds the fixed fee more profitable than either a royalty or distance fee. It will license to either one or both firms and when it does license to both firms, it exploits a prisoner's dilemma between the duopolists in order to license an innovation that reduces their profit.