DP2322 Location Choice and Price Discrimination in a Duopoly

Author(s):	Tommaso Valletti
Publication Date:	December 1999
Keyword(s):	horizontal and vertical differentiation, Location, Price Discrimination
JEL(s):	D43, L13
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2322

This paper analyzes the problem of price discrimination in a market where consumers have heterogeneous preferences over both a horizontal parameter (brand) and a vertical one (quality). A model with two firms competing over locations and non-linear contracts is analyzed. Discriminatory contracts are first characterized at each location. It is then shown that locations have a big impact on the firms' discriminatory ability and that equilibrium locations are non-monotonic in consumer types; however firms never locate too far away from the first and third quartiles.