Integration of Spatial Markets

Studies of spatial market integration draw their implications from a theory which assumes that there are no intraregional transport costs. An alternative theory is offered, based on the assumptions that buyers and sellers are spatially dispersed and intraregional transport costs are significant. This implies that the market is a linked oligopoly (or oligopsony) and that market integration tests are tests of alternative oligopoly price formation processes. For example, collusive basing‐point pricing produces results typically assumed to imply efficiently integrated markets, while competitive FOB pricing does not. The theoretical implications are illustrated with an analysis of hog prices in Canada.