UPSTREAM MONOPOLY, DOWNSTREAM COMPETITION AND SPATIAL PRICE-DISCRIMINATION

Works on spatial competition with discriminatory pricing assume that the input market is competitive or, at least, that upstream input suppliers do not offer price schedules contingent on downstream location decisions. In the present paper it is assumed that an upstream monopoly sets the price of its output based on its observation of the locations chosen by the firms downstream. A complete characterization of a subgame-perfect equilibrium is given. In particular, no equilibrium is efficient. Furthermore, the payoffs of the different firms in an equilibrium, point to an incentive shared by all of them for vertical integration.