Constrained efficient locations under delivered pricing

Abstract

In this article, we extend previous results on competitive delivered pricing by considering the second-best problem in which the social planner can regulate firm’s locations but not their pricing. Assuming constant marginal costs, we show that the constrained socially optimal locations are an equilibrium of the location-price game when: (i) demand is perfectly inelastic and (ii) demand is price sensitive but firms practice first-degree price discrimination. However, with elastic demand and linear delivered pricing, the market equilibrium provides too much spatial differentiation.