LOCATION AND MARKET POWER HOTELLING REVISITED*

ABSTRACT This paper analyzes the determination of industry structure in a product market, given a monopolistic factor market. The characteristics of industry structure examined include the number of firms, their pricing and locational pattern. It is shown how a monopolistic factor owner–a landowner–structures the product market in order to extract maximum rent. Asymmetry characterizes the resulting locational pattern. All the product market firms charge different prices in equilibrium. No matter how large the number of firms competing in the product market, the landowner can always guarantee himself positive profits. The paper concludes with a discussion of possible applications and tests of the theory.