Price Discrimination and Spatial Market Structure

Choon Sei Lee
Soonchunhyang University



This study compares price discrimination and uniform pricing in a spatial market of the Hotelling type. At first spatial monopoly is studied to compare with the case of spatial monopolistic competition, which shows that price discrimination requires different sorting mechanism depending on the type of market structure. With the spatial monopolistic competition, the study shows some positive results, comparing market shares, prices and output under the two pricing policies. One of finding is that if consumers are sorted based on the strengths of their brand preferences, consumer welfare increases even without a quantity increase. Most of consumers may be better off under price discrimination than they are under uniform pricing if consumers differ greatly in their strengths of brand preference.