The impact of transportation asymmetry on the choice of a spatial price policy

This paper studies the strategic choice of a spatial price policy between mill pricing and uniform-delivered pricing (UDP) under transportation asymmetry. Mill pricing in the model emerges as an equilibrium price policy, but it contains different types of strategic interaction, depending on the level of discrepancy between two firms’ transportation rates. If the transportation rate discrepancy is not too great, then mill pricing is a dominant strategy. When the discrepancy is large enough, mill pricing is viewed as a M-matching strategy, whereby the low-transportation-cost firm prefers matching the rival’s strategy, but the high-transportation-cost firm does not do so. There is no “Prisoner’s Dilemma” like the argument that Thisse and Vives (Am Econ Rev 78(1):122–137, 1988, AER) proposes, and there is no robustness for firms to choose a UDP policy like Kats and Thisse (in: Ohta and Thisse (eds) Does economic space matter? St Martin’s, New York, 1993) do. Our study matches the current trend of technology advancement in transportation.