UPSTREAM MONOPOLY, DOWNSTREAM COMPETITION AND SPATIAL PRICE-DISCRIMINATION

Works on spatial competition with discriminatory pricing assume that t he input market is competitive or, at least, that upstream input suppl iers do not offer price schedules contingent on downstream location de cisions. 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 subg ame-perfect equilibrium is given. In particular, no equilibrium is eff icient. Furthermore, the payoffs of the different firms in an equilibr ium, point to an incentive shared by all of them for vertical integrat ion.