Endogenous R&D Spillovers and Locational Choice with discriminatory pricing

We present a model of spatial price discrimination where R&D spillovers are endogenous as they depend on firms' location. We establish that both the distance between locations and R&D efforts are increasing functions of the transportation cost coefficient and show that there is a continuum of cases where firms will chose an intermediate location. The managerial implications from the model are discussed using examples of marketing behaviour by Internet retailers.