Konrad, Kai A.
In: International Journal of Industrial Organization, Vol. 18, No. 6: pp. 965-974
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Competition in some markets is a contest. Sellers compete for contracts by making promotional efforts. As in an all-pay auction, effort cannot be recovered even if the seller is not awarded the contract. The equilibrium location choices of sellers in a spatial model if firms compete for customers in an all-pay auction are the same as in the standard spatial price discrimination model. However, in contrast to spatial price discrimination, these location choices are inefficient if sellers' competition for customers is a contest.