Discriminatory prices, endogenous locations and the Prisoner Dilemma problem

In the Hotelling framework, the equilibrium first-degree discriminatory prices are all lower than the equilibrium uniform price. When firms locations are fixed, price discrimination emerges as the unique equilibrium in a game in which every firm may commit not to discriminate before setting the price schedule. This paper assumes endogenous locations and shows that uniform pricing emerges as the unique equilibrium in a game in which every firm may commit not to discriminate before choosing where to locate in the market. Price discrimination still is the unique equilibrium outcome when firms may commit only after the location choice.