MONOPSONY AND THE PRODUCTION LOCATION DECISION OF THE FIRM

This paper incorporates monopsony power in one of the input markets wi thin the context of the Weber-Moses triangular framework and examines the effect of an increase in monopsony power on the production-locatio n decision of the firm. In particular, this paper shows that the optim um location of the firm is independent of monopsony power if the produ ction function is homogeneous of degree one. However, if the productio n function is not homogeneous of degree one, the firm possessing monop sony power will have an incentive to move its location away from the m onopsonized input market towards other markets under certain reasonabl e assumptions. Finally, some important policy implications are generat ed from the analysis.