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Location Of Vertically Linked Oligopolists

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  • André Barreira Da Silva Rocha
  • José Pedro Pontes

Abstract

This paper examines the geographical equilibrium of location of N vertically linked firms and its relation to the creation of an industrial cluster. In a two†region spatial economy, a monopolist firm supplies an input to N consumer goods firms that compete in quantities. When the transport cost of the input increases, downstream firms prefer to agglomerate where the upstream firm is located, to save in production cost. However, simultaneous increases in the transport cost of the input and of the consumer good or increases in the number of downstream firms lead to a relative dispersion of these firms, to reduce competition and locate closer to the local final consumer. In contrast to Mayer (2000), when both transport costs increase, the location decision of downstream firms is based more on the geographical point that maximizes accessibility to the local final consumer than on the geographical point that minimizes the production cost.

Suggested Citation

  • André Barreira Da Silva Rocha & José Pedro Pontes, 2006. "Location Of Vertically Linked Oligopolists," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 18(2), pages 118-143, July.
    • Handle: RePEc:bla:revurb:v:18:y:2006:i:2:p:118-143
    DOI: 10.1111/j.1467-940X.2006.00112.x
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