Delivered Pricing and Merger with Demand Constraints

11 Pages Posted: 5 Jun 2006

See all articles by John S. Heywood

John S. Heywood

University of Wisconsin at Milwaukee

Kristen A. Monaco

California State University, Long Beach - Department of Economics

R. Rothschild

Lancaster University - Department of Economics

Abstract

The consequences of a demand constraint (low willingness to pay) are examined in a model of merger by spatial price discriminators. The imposition of a demand constraint reduces the extent of inefficiency associated with merger and also eliminates the resolution of the merger paradox obtained in the earlier, unconstrained case. Moreover, with the introduction of a demand constraint, a tax on transport cost can actually improve efficiency, which is never the case in the absence of the demand constraint. Indeed, the optimal tax often eliminates all spatial price competition by creating local monopolies. (JEL D43, L41)

Suggested Citation

Heywood, John S. and Monaco, Kristen A. and Rothschild, R., Delivered Pricing and Merger with Demand Constraints. Economic Inquiry, Vol. 42, Issue 1, pp. 49-59, 2004, Available at SSRN: https://ssrn.com/abstract=906205

John S. Heywood

University of Wisconsin at Milwaukee ( email )

3210 N. Maryland Avenue, Bolton Hall 802
Bolton Hall 802
Milwaukee, WI 53211
United States
414-229-4437 (Phone)
414-229-3860 (Fax)

Kristen A. Monaco (Contact Author)

California State University, Long Beach - Department of Economics ( email )

1250 Bellflower Blvd
Long Beach, CA 90840-4607
United States
(562) 985-5076 (Phone)

HOME PAGE: http://www.csulb.edu/~kmonaco

R. Rothschild

Lancaster University - Department of Economics ( email )

Bailrigg
Lancaster LA1 4YX
United Kingdom
+441524594217 (Phone)
+441524594244 (Fax)

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