Hong Hwang, Ph.D., Economics, National Taiwan University, 21 Hsu Chow Road, Taipei, 10020, Taiwan
Reinterpreting Hwang and Mai (AER, 1990) by both simplifying and generalizing their analysis in terms of two key demand parameters representing income and market size, we probe the welfare effects of spatial price discrimination to determine how robust the previous welfare findings in the literature are. Endogenous location matters when a monopolist chooses asymmetric location. If he remained at the same location, outcomes of fixed and endogenous location models must be analytically the same. Endogenous and asymmetric location changes the outcomes radically. We find pricing regulations could turn everybody worse off, and the rich even poorer than the poor.