In antitrust cases in which the defendant (a cartel or a dominant supplier) overcharged a firm, the defendant often claims: (1) the firm passed on the higher price to its customers, (2) its sales volume did not decrease materially, (3) so it lost little profit—the damages are small. The cases...

We study an Hotelling-type model with income constrained consumers. As income constraints bind, the subgame perfect equilibrium locations exhibit intermediate differentiation and reduced prices. When income becomes more restrictive, firms settle on the socially optimal degree of differentiation....