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

In the model of this paper, firms choose the location of their premise s, how many products to supply (out of the possible two), and the (dis criminatory) prices they charge to consumers in different locations fo r 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 co mpetition in the final stage, by choosing to compete fiercely in one o f the variables, they commit successfully to a tamer competition in th e other one, thus enhancing their profit.