Delivered Pricing, FOB Pricing, and Collusion in Spatial Markets

This article examines price discrimination and collusion in spatial markets. The problem is analyzed in the context of a repeated duopoly game. I conclude that the prevailing pricing systems depend on the structural elements of the market. Delivered pricing systems emerge in equilibrium in highly monopolistic and highly competitive industries, while FOB is used in intermediate market structures. The fact driving this result is that delivered pricing policies allow spatial price discrimination that facilitates collusion, but at the same time they have a very competitive feature: they are the only pricing rules that could be sustained in a very competitive market structure.