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- Title
A Welfare Analysis of Location Space Constraints with Vertically Separated Sellers.
- Authors
Li, Youping; Shuai, Jie
- Abstract
This paper studies the welfare effects of location space constraints when the duopoly sellers are vertically separated. As the downstream firms respond to higher input prices by locating further away from the center of the market, constraining them to locate within the linear city allows the upstream manufacturers better to exploit the downstream industry. This leads to higher final good prices and lower consumer welfare (despite the savings on transportation). This result - which is robust to the inclusion of R&D decisions - is in sharp contrast to the case in which the sellers are vertically integrated. Also different, the incentive to invest in cost-reducing R&D is always insufficient compared with the social optimum. Our results thus suggest the importance of taking into account the vertical market structure in formulating zoning (product standard) and R&D policies.
- Subjects
INDUSTRIAL location; DEALERS (Retail trade); PUBLIC welfare; VERTICAL marketing; MARKET design &; structure (Economics); RESEARCH &; development
- Publication
Review of Industrial Organization, 2018, Vol 52, Issue 1, p161
- ISSN
0889-938X
- Publication type
Article
- DOI
10.1007/s11151-017-9568-x