Demand and location decision of a monopsonistic firm

Abstract.

This paper examines the impact of demand on the location decision of a monopsonistic firm in the Weber-Moses triangle with one output and two inputs. When the distance of the plant location from the product market is held constant and the expansion path is linear through the origin, the analysis shows that as demand for output increases, the monopsonist has an incentive to move the plant away from the monopsonized input market and towards other markets. When the distance of the plant location from the product market is a choice variable, the linearly homogeneous production function is not sufficient to ensure that the location decision of the monopsonistic firm is independent of the demand function. These results differ significantly from the well-established results in location theory where the firm is a price taker in all the input markets.