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We investigate the effect of competition on price dispersion in the airline industry. Using panel data from 1993 to 2008, we find a nonmonotonic effect of competition on price dispersion. An increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets--an inverse-U relationship. Our empirical findings are consistent with an oligopolistic second-degree price discrimination model and encompass contradictory findings in the literature. [ABSTRACT FROM AUTHOR]

The comparison between specific (per unit) and ad valorem (percentage) taxation has been one of the oldest issues in public finance. In Cournot markets, with deterministic costs structures, conventional wisdom has it that ad valorem taxation tax-revenue dominates specific. It is shown that in the presence of uncertainty, regarding firms' cost structures, and under reasonable conditions, the conventional wisdom might not hold. The implication of this, from a policy perspective, is that the precise evaluation of the two types of taxation requires an explicit consideration of cost uncertainty. [ABSTRACT FROM AUTHOR]

We propose a new location model where consumers are allowed to make multiple purchases (i.e., one unit from each firm). This model may fit many markets (e.g. newspapers, credit cards) better than existing models. A common feature of these markets is that some consumers are loyal to one brand, while others consume more than one product. Our model yields predictions consistent with this observation. If firms are allowed to choose their locations on the interval, then spatial differentiation may not be maximal and in some cases it may even be minimal. Thus, under certain conditions, we restore Hotelling's Principle of Minimum Differentiation. [ABSTRACT FROM AUTHOR]

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Recent developments in information technology (IT) have resulted in the collection of a vast amount of customer-specific data. As IT advances, the quality of such information improves. We analyze a unifying spatial price discrimination model that encompasses the two most studied paradigms of two-group and perfect discrimination as special cases. Firms use the available information to classify the consumers into different groups. The number of identifiable consumer segments increases with the information quality. Among our findings (1) when the information quality is low, unilateral commitments not to price discriminate arise in equilibrium; (2) after a unique threshold of information precision such a commitment is a dominated strategy, and the game becomes a prisoners' dilemma; and (3) equilibrium profits exhibit a U-shaped relationship with the information quality. [ABSTRACT FROM AUTHOR]