The Implications of Quantity-Discounted Transportation Rates on Output Effect of Discriminatory F.O.B. Pricing

This paper examines the theoretical implications of quantity-discounted transportation rates on output effect of discriminatory f.o.b. mill pricing. Assume that the plant location of a monopoly is predetermined and demand curves are linear at two separate markets. It shows that total output under either discriminatory f.o.b. mill pricing or simple f.o.b. mill pricing remains the same when transportation rates are constant or linear. It further shows that total output will be greater under discriminatory f.o.b. mill pricing than under simple f.o.b. mill pricing when the transportation rate curve is convex in the market with less elastic demand and the transportation rate curve is concave in the market with more elastic demand. This indicates that the quantity-discounted transportation rates have an important influence on the output effect of spatial price discrimination.