ZONE PRICING*

ABSTRACT. Our purpose is to study a spatial price policy often encountered in the real world, known as zone pricing. This price policy consists in determining simultaneously several delivered prices together with the geographical zones in which they apply. It is shown that zone pricing approximates perfect spatial price discrimination and that the firm's profit increases with the number of zones. Furthermore, the number of markets supplied by the firm rises with the number of zones. Finally, zone pricing is compared to other standard spatial price policies and possible extensions are discussed.