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Location Choice of a Partially–Private Monopoly Supplier

Author

Listed:
  • Doriani Lingga
  • Damiana Simanjuntak

Abstract

This paper analyzes the location choice of an upstream monopolist who supplies input to asymmetric duopoly firms in a downstream market. The monopolist is partially private, in that it cares not only about its profit maximization but also about the survival of the downstream firms. Based on the Hotelling model, we find that the monopolist is always attracted to locate closer to the efficient downstream firm. In particular, when the efficiency difference between the two downstream firms is not too high, such that no firm is driven out of the market, the monopolist locates at a distance of 1/6 from the efficient firm in the line segment of unit length. Finally, considering the downstream firms’ survival, we show that the upstream monopolist charges a higher input price on the efficient firm. This study may be relevant to the product differentiation framework, in which firms can benefit from producing goods that are close to the preference of high-type consumers; to the pharmaceutical industry, in which pharmacy companies must cover a broad market segment; or to the policymaking process, in which policymakers may have an incentive to make a policy preferred by a particular group of the society. JEL Classifications: D42, L12, L230

Suggested Citation

  • Doriani Lingga & Damiana Simanjuntak, 2022. "Location Choice of a Partially–Private Monopoly Supplier," Studies in Microeconomics, , vol. 10(1), pages 106-121, June.
    • Handle: RePEc:sae:miceco:v:10:y:2022:i:1:p:106-121
    DOI: 10.1177/23210222211032108
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    References listed on IDEAS

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    More about this item

    Keywords

    Cost asymmetry; location; monopoly supplier; partially private monopolist;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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