Price and location equilibria in a circular market: a pure vs a mixed duopsony with a co-operative

Abstract

The objective of the present paper is to analyze the location-price competition in circular markets where the power lies with the buyers. To this end, it considers two alternative market structures. Namely, the pure ones, where the buyers of a primary commodity are private firms, and mixed ones, where a private firm competes against a producer's co-operative. According to the results, the pure-strategy location equilibrium in both cases involves a distance between the two players larger or equal to 1/4. Nevertheless, the equilibriums are qualitatively different. In the pure duopsony, a large distance is required to prevent a price war while in the mixed duopsony, the private firm tries to stay away from the co-op in order to ensure a strictly positive profit.

Keywords

• circular spatial competition
• market power
• mixed oligopsony