Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2010:5:
To Segment or Not to Segment Markets? A Note on the Profitability of Market Segmentation for an International Oligopoly

Fredrik Gallo ()

Abstract: Recent research on endogenous market segmentation finds that a monopoly’s expected profit under perfectly segmented markets increases (relative to its profits under perfectly integrated markets) with exchange rate volatility. The firm thus has an incentive to make consumer resale increasingly difficult. We show that such an incentive may be absent for two firms competing in a Cournot fashion. While limitless consumer arbitrage forces a monopolist to deviate from its optimal pricing policies, it acts as a “disciplining device” helping the Cournot duopoly to approach and commit to the cartel solution in some markets. The firms’ total profit may hence be higher when they engage in integrated-market pricing and neither firm would have an incentive to take on additional costs to facilitate segmenting.

Keywords: arbitrage; Cournot duopoly; exchange rate volatility; market segmentation; third degree price discrimination; (follow links to similar papers)

JEL-Codes: D43; F31; L13; (follow links to similar papers)

19 pages, May 14, 2010

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

WP10_5.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to David Edgerton ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:lunewp:2010_005 This page was generated on 2014-12-14 19:24:57