Location choice and price discrimination in a duopoly

This paper analyses the problem of price discrimination and product design in a duopoly model with both horizontal and vertical differentiation. Discriminatory contracts are first characterised at each customer location. It is then shown that firms' locations have a big impact on their discriminatory ability and that equilibrium locations are not monotonic with respect to the heterogeneity parameter for the distribution of consumer preferences over quality; however firms never locate too far away from the first and third quartiles. (C) 2002 Elsevier Science B .V. All rights reserved.