Location decisions and welfare under spatial price discrimination

The welfare effects of regulation are of crucial importance to policy makers. To this end, we present a model of n firms with differentiated costs competing in a linear market within the framework of spatial price discrimination. We prove that the Nash equilibrium locations of firms are always socially optimal irrespective of the number of competitors, the distribution of consumers, firms' cost heterogeneity, the level of privatization, and the number and/or the varieties of the produced goods. We also provide an algorithm on how to find the unique Nash equilibrium in the case of uniformly distributed consumers.