Spatial differentiation,divisible consumption and the pro-competitive effect of income

We analyze a spatial differentiation model with divisible consumption under one-stop shopping. Each consumer who visits only one store, chooses the quantities of the goods which maximize his/her utility function under the budget constraint (namely consumption expenditures must equal income minus transportation costs), choosing the store which provides him/her with the largest indirect utility. We derive the equilibrium price when the firms are located at the two extremities of Hotelling’s linear city and show that income increases have a pro-competitive effect.