Book contents
- Frontmatter
- Contents
- Preface
- Introduction
- I MARKET STRUCTURE
- II INDUSTRIAL PRICING AND PRICING SCHEMES
- 6 Intertemporal pricing schemes
- 7 Spatial pricing schemes
- 8 Best-price policies
- 9 Vertical pricing schemes
- 10 Price discrimination in a common market
- 11 Tacit collusion (1)
- 12 Tacit collusion (2)
- III COMPETITION POLICY
- IV MERGERS AND MERGER CONTROL
- Index
7 - Spatial pricing schemes
On the strategic choice of spatial price policy
Published online by Cambridge University Press: 21 September 2009
- Frontmatter
- Contents
- Preface
- Introduction
- I MARKET STRUCTURE
- II INDUSTRIAL PRICING AND PRICING SCHEMES
- 6 Intertemporal pricing schemes
- 7 Spatial pricing schemes
- 8 Best-price policies
- 9 Vertical pricing schemes
- 10 Price discrimination in a common market
- 11 Tacit collusion (1)
- 12 Tacit collusion (2)
- III COMPETITION POLICY
- IV MERGERS AND MERGER CONTROL
- Index
Summary
In any industry, current business practices are not only the result of an adaptation by firms to particular technological or institutional conditions but also reflect, or are the instruments of, a strategic positioning of firms in the markets. The specific price policies that firms follow are obviously one of the most important business practices in any market environment. Although their strategic importance is widely recognized in the business literature, perhaps somewhat surprisingly, the economics literature in general has not paid enough attention to the detail of specific pricing methods and, consequently, has not been able to provide convincing explanations of the incentive structure that lies behind certain price policies. In this chapter, we would like to present some very simple game-theoretic models which are naturally related to some pricing policies found in geographical or product differentiation contexts. Let us begin by describing some of these policies.
In a geographical context, examples of alternative pricing methods are: (i) the zone price system, under which a specific delivered price is charged to all buyers located in a given region, such as for plasterboard in the United Kingdom or cement in Belgium; (ii) the (single) basing point system, in which the delivered price equals a base price plus the cost of shipping to the place of delivery from a given basing point that need not be where the seller is actually located, such as the Pittsburgh-plus system used in the steel industry in the United States until the mid 1920s or the Portland-plus system used for plywood in the United States until the 1970s; (iii) uniform free on board (FOB) prices, in which the delivered price equals the mill price – the same for all customers – plus the actual transport costs.
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- Applied Industrial Economics , pp. 152 - 173Publisher: Cambridge University PressPrint publication year: 1998
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