Urban/rural spatial price discrimination with online competition

We contribute to the previous offline spatial price discrimination by adding an online entrant that results in partially equalized prices, and the urban (rural) segments are served by the offline (online) firms. The presence of online competition prompts offline firms to relocate nearer to the market center. The online firm’s advantage in servicing remote areas grants it market power, enabling it to mark up its prices. This leads to a shift in the equilibrium locations of firms, causing them to diverge from socially optimal positions. The magnitude of this online advantage directly influences market dynamics: a greater advantage correlates with higher online prices, a reduced dispersion of offline firm locations, and decreased offline prices in urban regions. Finally, zoning policies and two extensions of online price discrimination and multiple offline firms with free entry are offered.