DELIVERED PRICING, FOB PRICING, AND COLLUSION IN SPATIAL MARKETS

The article examines price discrimination and collusion in spatial mar kets. The problem is analyzed in the context of a repeated duopoly gam e. I conclude that the prevailing pricing systems depend on the struct ural elements of the market. Delivered pricing systems emerge in equil ibrium in highly monopolistic and highly competitive industries, while FOB is used in intermediate market structures. The fact driving this result is that delivered pricing policies allow spatial price discrimi nation that facilitates collusion, but at the same time they have a ve ry competitive feature: they are the only pricing rules that could be sustained in a very competitive market structure.