Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95876
Authors: 
Baye, Irina
Hasnas, Irina
Year of Publication: 
2014
Series/Report no.: 
DICE Discussion Paper 139
Abstract: 
We analyze firms' location choices in a Hotelling model with two-dimensional consumer heterogeneity, along addresses and transport cost parameters (flexibility). Firms can price discriminate based on perfect data on consumer addresses and (possibly) imperfect data on consumer flexibility. We show that firms' location choices depend on how strongly consumers differ in flexibility. Precisely, when consumers are relatively homogeneous, equilibrium locations are socially optimal regardless of the quality of customer flexibility data. However, when consumers are relatively differentiated, firms make socially optimal location choices only when customer flexibility data is perfect. These results are driven by the optimal strategy of a firm on its turf, monopolization or market-sharing, which in turn depends on consumer heterogeneity in flexibility. Our analysis is motivated by the availability of customer data, which allows firms to practice third-degree price discrimination based on both consumer characteristics relevant in spatial competition, addresses and transport cost parameters.
Subjects: 
Location Choice
Price Discrimination
Customer Data
JEL: 
D43
L13
R30
R32
ISBN: 
978-3-86304-138-0
Document Type: 
Working Paper

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