traditional m icroeconom ics theory, only monopoly can adop t discrim inatory p ricing w hen there is not arbitrage betw een consumers. In horizontal differentiation p roduct industries, the firm s have market pow ers in their ow n p roducts, and consumers have different tastes on different p roducts. So firm s can choose discrim inatory p ricing successfully. In most two2stage horizontal differentiation Hotelling mod2 els, the locations of firm s alw ays deviate from the social op timum. Th is paper analyzes a two2stage loca2 tion2p ricemodelw ith discrim inatory p ricing of duopoly, on the basis of different consumer’ s gross surp lus. Two firm s choose locations in the first stage and p rices in the second. The subgame perfect N ash equilibri2 um show s that the firm s’ locations are social op tima.