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Localized Competition, Heterogeneous Firms and Vertical Relations


  • We would like to thank the Editor, two anonymous referees, Paolo Bertoletti, Paul W. Dobson, Gilles Duranton, Paul Madden, Andrè de Palma, Francesco Passarelli, Carlo Reggiani, Jacques-François Thisse, Mike Walker, and the participants of 2010 IIO Conference in Vancouver, of the 2010 EARIE Conference in Instanbul, of the CCRP Workshop organized by The City University, London, for their suggestions and comments.


This paper investigates the link between firms' geographic configuration and market power in imperfect markets. We consider two related setups. The first illustrates the relevant characteristics of the pricing equilibrium. A main implication is that the equilibrium price vector changes in accordance with the firms' spatial configuration. The second, where firms operate as downstream retailers affiliated to rival upstream wholesalers, shows that upstream market power is strongly affected by an index of geographic concentration which reflects the spatial configuration of retailers. Finally, our analysis provides several insights for market delineation as well as merger evaluation and remedies.