Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 1006: Firms price discriminate based on suppliers’ relative distances to competitors

David Granlund () and Sef Meens-Eriksson ()
Additional contact information
David Granlund: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Sef Meens-Eriksson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: We derive a theoretical model predicting that firms should mark down input prices more the longer distance a supplier has to a competitor’s plant relative to their own plant. We test this prediction using contract-level data on prices of waste burned at energy plants. To the best of our knowledge, we are the first to study whether firms price discriminate based on relative distance to the closest competitor. The empirical results confirm that longer relative distances to competitors’ plants lead to lower prices and show no evidence of additional effects of the distance to the chosen plant.

Keywords: auction; market power; oligopsony; price discrimination; procurement; spatial competition; transport cost; waste incineration

JEL-codes: D43; D44; L11; L13; Q53

Language: English

30 pages, First version: August 17, 2022. Revised: February 5, 2024.

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