Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/29759 
Year of Publication: 
2009
Series/Report no.: 
DIW Discussion Papers No. 919
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We present a model with firms selling (homogeneous) products in two imperfectly segmented markets (a high-demand and a low-demand market). Buyers are mobile but restricted by transportation costs, so that imperfect arbitrage occurs when prices differ in both markets. We show that equilibria are distorted away from Cournot outcomes to prevent consumer arbitrage. Furthermore, a merger can lead to an equilibrium in which only the high-demand market is served. This is more likely (i) the lower consumers' transportation costs and (ii) the higher the concentration of the industry. Therefore, merger incentives are much larger than standard analysis suggests.
Subjects: 
Imperfect market segmentation
oligopoly
price discrimination
consumer arbitrage
mergers
JEL: 
D43
L13
L41
Document Type: 
Working Paper

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