Location and Spatial Pricing in Agricultural Markets

Agricultural markets often feature significant transport costs and spatially distributed production and processing which causes spatial imperfect competition. Spatial economics considers the firms’ decisions regarding location and spatial price strategy separately, usually on the demand side, and under restrictive assumptions. Therefore, alternative approaches are needed to explain, e.g., the location of new ethanol plants in the U.S. at peripheral as well as at central locations and the observation of different spatial price strategies in the market. We use an agent-based simulation model to analyze location and spatial pricing in a general model under multi-firm competition, two-dimensional space, and a continuum of potential price strategies. The results show, e.g., that depending on the location of a processor, different price strategies can be observed, spatial price discrimination can increase with the number of competitors, and elasticity in the producers’ supply functions can be identified as stabilizing factor of processor’s location.