Agglomeration in a vertically-related oligopoly

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 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 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). Copyright Springer-Verlag Berlin/Heidelberg 2005