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This paper examines a differentiated product duopoly operating in two geographically separate markets. Firms operate a single production facility each; facilities are located in different markets, but firms can supply both markets from their respective facility. Shipping across markets is costly; thus, every firm has a cost advantage in its home market. Consumers treat the two products as horizontally differentiated substitutes and their preferences are identical in both markets. In the non-cooperative equilibrium, each firm has a smaller market share and mark-up in the away market. The asymmetric mark-up leads to a market distortion, with more consumers than is socially optimal purchasing the imported good. Collusion between the two firms partially mitigates this distortion by reducing cross-hauling, resulting in higher aggregate welfare.