Location Discrimination in Circular City, Torus Town, and Beyond


Abstract
Salop’s “Circular City” model of spatial competition is generalized to higher dimensions, and to “transportation” costs which are a power of distance. Assuming free entry, mill pricing is compared to location-based price discrimination. For dimensions above one, there is some too little entry below some cutoff power, and too much entry above it. This cutoff cost-power rises with dimension, and is larger under price discrimination. Mill pricing induces more entry for powers of four or less, and less entry for powers of five or more. Overall, too much entry seems a more severe problem, which tends to price discrimination
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