Firms Price Discriminate Based on Suppliers’ Relative Distances to Competitors

A theoretical model of spatial price discrimination predicts that firms should mark down input prices more the longer distance a supplier has to a competitor’s plant relative to their own plant. We test this prediction using contract-level data on prices of waste burned at energy plants. To the best of our knowledge, we are the first to study whether firms price discriminate based on relative distance to the closest competitor. The results confirm that longer relative distances to competitors’ plants lead to lower prices and show no evidence of additional effects of the distance to the contracted plant