Localized Competition, Heterogeneous Firms and Vertical Relations

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.