COMPETITIVE SPATIAL PRICE-DISCRIMINATION WITH STRICTLY CONVEX PRODUCTION COSTS

This paper studies the equilibrium between two competing firms which have strictly convex production costs and which can engage in spatial price discrimination. The subgame perfect Nash equilibrium locations coincide with the social cost-minimizing locations, at the quartiles of the market, only when marginal cost of production is constant. When marginal cost of production is increasing, although social cost is minimized when the firms locate at the quartiles, they will locate elsewhere in the equilibrium.