This paper studies the issue of agglomeration versus fragmentation of vertically related industries. While the downstream industry works under perfect competition, the upstream industry is a duopoly where each firm supplies a differentiated input to the competitive firms. These process the inputs under a quadratic production function entailing decreasing returns as in PENG, THISSE and WANG (2006). It is found that fragmentation occurs if the transport cost of final goods is medium to high, while the transport cost of inputs is low. Otherwise, agglomeration prevails. Multiple agglomerated equilibria are possible if the transport cost of intermediate goods is either medium or high.
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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number
2008/30.
Length: Date of creation: Mar 2008 Date of revision: Handle: RePEc:ise:isegwp:wp302008
Contact details of provider: Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL Web page: http://www.iseg.utl.pt/departamentos/economia/
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