Agglomeration in a vertically-related oligopoly

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. It is concluded that agglom- eration 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 pro- portion is low, the likelihood of an agglomeration decreases with transport costs. If the ratio has an intermediate value, a non-monotonic pattern is obtained that is different from Krugman and Venables (1995).