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Bilateral monopolies and location choice

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  • Brekke, Kurt R.
  • Straume, Odd Rune

Abstract

We analyse how equilibrium locations in location-price games à la Hotelling are affected when firms acquire inputs through bilateral monopoly relations with suppliers. Assuming a duopoly downstream market, we consider the case of two independent input suppliers bargaining with both downstream firms. We find that the presence of input suppliers changes the locational incentives of downstream firms in several ways, compared with the case of exogenous production costs. Bargaining induces downstream firms to locate further apart, despite the fact that input prices increase with the distance between the firms. In the case of asymmetrical bargaining strengths, the downstream firm facing the stronger input supplier has a strategic advantage and locates closer to the market centre. Sequential location introduces a first-mover advantage which may be mitigated or reinforced, depending on whether or not it is the first mover that bargains with the stronger input supplier.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 34 (2004)
Issue (Month): 3 (May)
Pages: 275-288

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Handle: RePEc:eee:regeco:v:34:y:2004:i:3:p:275-288

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Web page: http://www.elsevier.com/locate/regec

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References

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Citations

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Cited by:
  1. Hans Jarle Kind & Guttorm Schjelderup & Frank Stähler, 2013. "Newspaper Differentiation and Investments in Journalism: The Role of Tax Policy," Economica, London School of Economics and Political Science, vol. 80(317), pages 131-148, 01.
  2. Choi, Kangsik, 2009. "Government's Preference and Timing of Endogenous Wage Setting: Perspectives on Privatization and Mixed Duopoly," MPRA Paper 17221, University Library of Munich, Germany.
  3. Juan Bárcena-Ruiz & F. Casado-Izaga, 2012. "Location of public and private firms under endogenous timing of choices," Journal of Economics, Springer, vol. 105(2), pages 129-143, March.
  4. Qiang Wang & Qi Chen, 2008. "Cournot competition and location choice with wage bargaining," Economics Bulletin, AccessEcon, vol. 12(22), pages 1-5.
  5. Choi, Kangsik, 2010. "The Timing of Endogenous Wage Setting under Bertrand Competition in a Unionized Mixed Duopoly," MPRA Paper 20205, University Library of Munich, Germany.
  6. Kourandi, Frago & Vettas, Nikolaos, 2010. "Endogenous Spatial Differentiation with Vertical Contracting," CEPR Discussion Papers 7948, C.E.P.R. Discussion Papers.
  7. repec:ebl:ecbull:v:12:y:2008:i:22:p:1-5 is not listed on IDEAS
  8. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
  9. Juan Bárcena-Ruiz & F. Casado-Izaga, 2008. "Timing of endogenous bargaining over costs and firms’ locations," Journal of Economics, Springer, vol. 95(2), pages 149-166, November.

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