Capacity constraints, price discrimination, inefficient competition and subcontracting

We characterize mixed-strategy equilibria in a setting with capacity constrained suppliers which can charge location based prices to different customers. The equilibrium prices weakly increase in the transport distance between supplier and customer, whereas the margins decrease. Despite prices above costs and excess capacities, the competing suppliers exclusively serve their home markets in equilibrium. Competition yields volatile market shares and an inefficient allocation of more distant customers to firms. Even ex-post subcontracting may restore efficiency only partly. The suppliers sometimes do not cross-supply each other as this can intensify competition by relaxing the receiver's capacity constraint. We use our findings to discuss recent competition policy cases and provide hints for a more refined coordinated-effects analysis.