Abstract
In a framework that allows the joint analysis of the pricing, positioning, and R\&D decisions of duopolistic firms, we compare two widely used models of location-price competition, with and without location constraint, and focus on the vertical structure of the supply side. We find that when the sellers are vertically separated, many of the results are reversed including that restrictions on the location space harm consumers. Moreover, R\&D investment is always insufficient compared with the social optimum. Our results suggest that government policies on urban planning and R\&D must take into account the vertical market structure.
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