Indirect Competition with Spatial Product Differentiation

Abstract

Although two markets may appear to be separate, sometimes one firm participates in both of them. That firm provides a link between the two markets. Such a straddling firm transmits indirect competition from each market to the other since its actions reflect competitive conditions in both markets. In a model of spatial product differentiation, the author shows that indirect competition may make a market perform significantly better than the number of firms would indicate. Moreover, total consumer surplus increases if two previously-distinct markets are linked by a straddler. Finally, the author considers implications of these results for antitrust analysis. Copyright 1989 by Blackwell Publishing Ltd.