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.
Funding source: National Science Foundation of China
Award Identifier / Grant number: 71803137
Zheng Wang’s research was supported by the National Science Foundation of China (NSFC) [grant numbers: 71803137 and 71733001].
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