Effects of Spatial Price Discrimination on Output, Welfare, and Location: Comments and Extension

Masa K. Naito
(Niigata University, Japan)

Abstract: According to Hwang-Mai (1990), a monopolist facing a fixed number of markets with linear demands can yield smaller output and yet greater welfare under discriminatory rather than nondiscriminatory mill pricing policy. Unfortunately, this is an untenable proposition flawed by an invalid simulation. We find that within the confines of their simulation parameters it is the nondiscriminatory pricing policy that yields strictly greater welfare than does discriminatory pricing with no regulation. This does not necessarily mean that the Hwang-Mai conclusion is untenable, but it does reveal the risk of careless simulation that leads to nowhere.

Key words: uniform mill pricing, discriminatory pricing, endogenous location

JEL codes: R32, R11, D40