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. Online competition induces the offline firms to move closer to the market center, which causes the equilibrium locations to no longer be the social optimum due to the online price distortion. The greater the online advantage is, the higher the online price, the less dispersed the offline locations, and the lower the offline prices will be in urban areas. Finally, zoning policies and two extensions of online price discrimination and multiple offline firms with free entry are offered.
JEL Classification Numbers. R30, L13