Spatial Pricing, Spatial Rents, and Spatial Welfare

Abstract

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Spatial differentiation and price discrimination in the cement industry: evidence from a structural model

“…In particular, we compute equilibrium under the restriction that each plant sets the same mill price to each county, taking as given the baseline parameter estimates and the topology of the industry in the year 2003. The consumer surplus implications of spatial price discrimination have long been recognized as theoretically ambiguous (e.g., Gronberg and Meyer, ; Katz, ; Hobbs, ; Anderson, de Palma, and Thisse, ) and, to our knowledge, we provide the first empirical evidence on the matter.…”

“…industry in the year 2003. The consumer surplus implications of spatial price discrimination have long been recognized as theoretically ambiguous (e.g., Gronberg and Meyer, 1982;Katz, 1984;Hobbs, 1986;Anderson, de Palma, and Thisse, 1989) and, to our knowledge, we provide the first empirical evidence on the matter. Figure 7 characterizes the consumer surplus implications of disallowing spatial price discrimination.…”

“…The effects of such a ban would vary widely across the US Southwest, with regions near cement plants benefitting and more isolated customers being harmed. Although the theoretical literature has long recognized that spatial price discrimination can increase or decrease consumer surplus (e.g., Gronberg and Meyer, ; Katz, ; Hobbs, ; Anderson, de Palma, and Thisse ), to our knowledge we provide the first empirical evidence on the topic. Second, we evaluate a hypothetical merger between the two largest portland cement manufacturers in the US Southwest in 1986 to illustrate how our approach could be used to illuminate the competitive effects of mergers in industries characterized by high transportation costs.…”