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The Quality-Income effect and the selection of location

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  • Bacchiega, Emanuele
  • Minniti, Antonio

Abstract

We analyze a location-choice model with two vertically differentiated firms and two regions with different consumer income. We find that the high-quality producer settles in the poor region and the low-quality one in the rich region when income disparities are sufficiently high and goods are differentiated enough. This apparently counter-intuitive result is not determined by technology or size issues; rather, it relies on the relationship between regional income disparities and product quality, which we call the "Quality-Income effect."

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 65 (2009)
Issue (Month): 2 (March)
Pages: 209-215

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Handle: RePEc:eee:juecon:v:65:y:2009:i:2:p:209-215

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Vertical differentiation Income disparities Location Inner city;

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