Using Hotelling type product differentiation model, we investigate the relation between downstream firms' strategies of product differentiation and upstream firms' production technology. We assume that each upstream firm symmetrically locates in the linear city. Given that the upstream firms' transportation costs per unit
are large, the larger the transportation costs per length, the weaker the level of the downstream firms' product differentiation.
In a equilibrium outcome, the closer each upstream firm locates, the further each downstream firm locates.
(2002.09.18)