SPATIAL MONOPSONY AND MONOPOLY PRICING IN A STOCHASTIC ENVIRONMENT

In this paper some of the important properties of the behavior of a spatial monopsonist (monopolist) facing a stochastic supply (demand) curve are derived. Under uncertainty, price setting and quantity setting behavior are no longer equivalent. Hence, spatial price discrimination has to be compared with spatial quantity discrimination with respect to expected profits. I prove three general theorems on how the ranking of the behavioral modes, in terms of expected profit, depends on how the stochastic component enters the supply (demand) and supply (demand) price functions. In particular, I prove that under monopsony one would expect a high probability of excess demand, in the sense that the firm would accept all deliveries at the preset price.