The plasma cavity in which the auroral kilometric radiation (AKR) is generated is known to contain localized density enhancements, and the cavity itself is surrounded by regions of much higher plasma density. Particle simulations are used to investigate the effects of such a source structure perpendicular to a uniform magnetic field on the generation and propagation of electromagnetic radiation produced by the cyclotron maser instability. It is found that the efficiency of radiation production is significantly increased in comparison to the uniform geometry case. The radiation is observed to consist of wave packets which travel at speeds of the order of 0.1c--0.2c, which is consistent with the X mode group velocity near cutoff. The reflection of these structures at the edge of a density enhancement is quite weak, with less than 0.1% of the incident energy being reflected in a typical case. The radiation with frequency &ohgr;≲&OHgr;e produced in the cavity region and emitted perpendicular to the magnetic field is observed to penetrate through regions of high density cold plasma with little diminution. The mechanism for this propagation is identified as mode conversion of the original X mode waves into Z mode waves at the edge of the plasma cavity and subsequent conversion to the R-X mode as the plasma density decreases again. The implications of these results for theories concerning the generation and propagation of AKR are discussed.