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Quality, Location and Collusion under Spatial Price Discrimination

John S. Heywood and Zheng Wang

Abstract

We present the first demonstration of the influence of a quality rivalry on location choices under spatial price discrimination. The rivalry is shown to generate the socially efficient quality but to push locations inefficiently close together, a result not found under Hotelling pricing. We apply this new equilibrium to the anti-trust policy issue of collusion showing that introducing the quality rivalry reduces the likelihood of collusion.

JEL Classification: L13; R32

Corresponding author: Zheng Wang, Capital University of Economics and Business, International School of Economics and Management, Beijing, China, E-mail:

Funding source: National Science Foundation of China

Award Identifier / Grant number: 71803137

Acknowledgements

Zheng Wang’s research was supported by the National Science Foundation of China (NSFC) [grant numbers: 71803137 and 71733001].

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Received: 2020-06-26
Revised: 2021-04-10
Accepted: 2021-05-19
Published Online: 2021-06-07

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