Delivered Pricing in Theory and Policy Practice

Document Type

Article

Journal/Book Title/Conference

Antitrust Bulletin

Volume

52

Issue

2

Publication Date

2007

First Page

205

Last Page

228

Abstract

In the standard textbook theory of spatial pricing, firms typically charge prices f.o.b. ("free on board"). Under such a policy, the price paid by any one customer is equal to the price at the seller's plant (the "mill price") plus the cost of shipping the product to him. The shipping-cost component of the delivered price is in turn determined by multiplying the unit cost of transportation times the linear distance from the mill to the customer's location. Each buyer is quoted a different price that depends on proximity and, all else equal, therefore purchases from the nearest seller.

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