Endogenous location and pricing policy: mixed strategies make uniform pricing commitment successful

Iñaki Aguirre

MPRA Paper from University Library of Munich, Germany

Abstract: We study the strategic choice of spatial price policy (uniform pricing versus spatial price discrimination) in a linear city with quadratic transport costs and endogenous locations, under two alternative three-stage game orderings (following Eber, 1997). The asymmetric subgame (in which one firm discriminates while the other prices uniformly) is solved via the mixed-strategy Nash equilibrium under simultaneous price competition, replacing the Stackelberg standard of Thisse and Vives (1988). In Game I (location-pricing policy-prices), the policy game is a coordination game: both are Nash equilibria but mutual uniform pricing Pareto dominates mutual discrimination. This overturns the Prisoner’s Dilemma that arises under the Stackelberg standard, in which price discrimination is a dominant strategy. In Game II (pricing policy-location-prices), mutual uniform pricing is the unique equilibrium.

Keywords: Price Discrimination; Prisoner’s Dilemma; Location Choice; Mixed-Strategy Nash Equilibrium. (search for similar items in EconPapers)
JEL-codes: D43 L13 R32 (search for similar items in EconPapers)
Date: 2026-06
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