Competition of Firms: Discriminatory Pricing and Location

Two costlessly mobile firms are to be located in a market region, a subset of the plane. The firms compete by setting locations and delivered price schedules. To study this competitive situation an appropriate extensive form game is defined, along with an appropriate noncooperative solution concept. Existence and general properties of the equilibrium are demonstrated. Among the results are: Each firm increases its profit by locating so as to decrease total cost to both firms of serving the market. Firms will never locate coincidentally if they have identical production costs and transport cost rates, or if these are different and the firms are located in a circular market region having a uniform demand distribution.