To Segment Or Not To Segment Markets? A Note On The Profitability Of Market Segmentation For An International Oligopoly
Recent research on endogenous market segmentation finds that a monopoly's expected profit under perfectly segmented markets increases (relative to its profits under perfectly integrated markets) with exchange rate volatility. The firm thus has an incentive to make consumer resale increasingly difficult. The authors show that such an incentive may be absent for two firms competing in a Cournot fashion. While limitless consumer arbitrage forces a monopolist to deviate from its optimal pricing policies, it acts as a "Disciplining device" helping the Cournot duopoly to approach and commit to the cartel solution in some markets.