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Spatial Price Discrimination with Heterogeneous Firms


  • I am grateful to Esteban Rossi-Hansberg, Navin Kartik, Kai-Uwe Kühn, and especially to Gene Grossman and Faruk Gul for helpful comments. I have also benefited from a stimulating discussion by Thomas Chaney at the CEPR Conference on Product Heterogeneity and Quality Heterogeneity in International Trade. An earlier draft of this paper appeared in my dissertation. I acknowledge with thanks the National Science Foundation for support under grants SES 0211748 and SES 0451712. Any opinions, findings and conclusions or recommendations expressed in this paper are those of the author and do not necessarily reflect the views of the National Science Foundation or any other organization.


In this paper we aim to explain intuitively heterogeneous firms’ optimal location decisions in a simple spatial market. To do so, we present and solve a four-stage game of entry, location, pricing and consumption in a spatial price discrimination framework with arbitrarily many heterogeneous firms. We provide a unique equilibrium outcome without imposing restrictions on the distribution of marginal costs across firms.

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