RELAXING SPATIAL COMPETITION THROUGH PRODUCT LINE CHOICE (OR VICE-VERSA)

In the model of this paper, firms choose the location of their premises, how many products to supply (out of the possible two), and the (discriminatory) prices they charge to consumers in different locations for each of the goods they supply. It is shown that firms either cluster at the centre of the market and supply different products, or select different locations and supply identical product pairs. Given price competition in the final stage, by choosing to compete fiercely in one of the variables, they commit successfully to a tamer competition in the other one, thus enhancing their profit.