Consumers are uniformly distributed on an interval of length 1. They pay transportation costs of $1 per kilometer. Each wants to buy one unit of a homogeneous good. Two firms producing this homogeneous good are located at the two end points of the interval. They simultaneously choose prices for their product. Firm 1 has the option of paying a bus company a lump sum $L so that customers can reach firm 1 with transportation costs $0.5 per kilometer (the cost of reaching firm 2 remains $1 per km).

(a) How much is firm 1 willing to pay the bus company for this privilege?

(b) Provide an economic explanation for your answer.