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Agglomeration in a Vertically-linked Oligopoly

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  • José Pedro Pontes

Abstract

This paper examines the location of three vertically-linked firms. In a spatial economy composed of two regions, a monopolist firm supplies an input to two consumer goods firms that compete in quantities. The interaction between the firms is modelled by means of a three-stage game, where the firms first select locations, then the upstream firm chooses thedelivered prices of the intermediate good, and finally the downstream firms select quantities of the final good. It is concluded that agglomeration is more likely to occur when the ratio between the transport cost of the intermediate good and the transport cost of the final good is higher. If this proportion is low, the existence of an agglomeration varies nonmonotonically with transport costs.

Suggested Citation

  • José Pedro Pontes, 2004. "Agglomeration in a Vertically-linked Oligopoly," Working Papers Department of Economics 2004/06, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp62004
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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