Can Firms Favor Location Regulation?

ABSTRACT Government regulations are believed to confine targeted firms' economic power, leading to a decline (rise) in producer (consumer) surplus. This paper explores the implications of location regulation in a spatially discriminatory pricing model with homogeneous products and linear transportation costs. Contrary to conventional wisdom, location regulation benefits (harms) producers but harms (benefits) consumers when firms engage in quantity (price) competition. Next, under location regulation, Bertrand firms are less (more) dispersed than Cournot firms if the transport rate is high (low). I also extend the analysis by comparing location and price regulations, as well as considering product differentiation and quadratic transportation costs.