First we provide interval estimates of the choke price of cigarettes by state.
Using our estimates of the parameters of this model presented in the first column of Table I we can obtain estimates of the long run choke price [Mathematical Expression Omitted].
Table II presents our choke price estimates computed according to this procedure.
The bounds on our interval estimates form a 95% asymptotic confidence interval on the true choke price for the representative consumer in each state.
Resource nonusers are assumed to currently (with degraded quality) face a price for on-site use which is greater than or equal to their choke price. That is, they face a price that drives recreation demand to zero.
where [Mathematical Expression Omitted] is the choke price which depends on the quality level.
Since the choke price appears in [16] and [17] for on-site use of resource 1, the own-price effect for nonusers will differ from that of users.
Total quantity demanded at distance r is given by(4) (1) q(P(r)) = [Beta] [P.sub.2] - [Beta] P(r), q([Beta]) = 0, where P(r) is the delivered price and [Beta] is a parameter equal to the choke price.(5) Subsequent measures of consumer surplus will be based on the area under this demand function.
Pricing over space is determined by P(r) = P(0) + etr, r [Epsilon] [0, R], but the monopolist must choose P(R) [is less than or equal to] [Beta], the choke price. Thus the general pattern of spatial pricing is a function of P(0) and e, which vary independently of R except when the choke price is binding--i.e., in the case where P(R) = [Beta].
A single-plant spatial monopolist under transportation cost absorption regulation will charge the choke price at r = R if regulated e [Epsilon] [1/2, 1]; otherwise it will charge a price less than the choke price at r = R if regulated e [Epsilon] [0, 1/2).
This switching arises for a variety of demand curves, convex, concave, and linear, but it does require that there be a choke price. In such cases, there are two factors which can produce a market boundary at R.
