UNIFORM SPATIAL PRICING |
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| Authors: | Phillip J Lederer |
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| Institution: | William E. Simon Graduate School of Business Administration, University of Rochester, Rochester, NY 14627. E‐mail: Lederer@simon.rochester.edu |
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| Abstract: | ABSTRACT Uniform spatial pricing means that a firm delivers its product to any customer at a fixed price, independent of location. Economic theory explains the use of uniform pricing by the added profit generated by absorbing freight charges of distant customers. I extend this insight by demonstrating that when demand elasticity and transportation cost are positively enough correlated, uniform pricing generates higher profits than mill pricing. I show that this result can better explain observed patterns of price policy choice by mail order and web firms. A second result is application of this idea to firms with many shipping facilities. |
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