Monopolistic competition, increasing returns, agglomeration, and transport costs
AbstractThis paper presents a model where production concentrated in one place is compared with dispersed production. Concentrated production can attain a higher level of productivity but must incur transport costs. Dispersed production, on the other hand, has a lower productivity level but need no transportation. In order to avoid unnecessary complications, output per capita is used as an objective function. Transport cost is measured in units of output and will therefore affect the objective function directly. The model uses a linkage approach where a final output is produced under constant returns to scale. This production has increasing returns to the number of differentiated inputs. The differentiated intermediate inputs are produced subject to increasing returns to scale in a framework of Chamberlinian monopolistic competition. The size of the market determines the number of intermediate inputs that the local economy can accommodate. In this way the model formalises Adam Smith's theorem on the division of labour being limited by the extent of the market. The paper examines how the break-even point between the two ways of organising production is affected by (i) changes in transport cost and market density and (ii) shifts in technology for producers of intermediaries and the final output.
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Bibliographic InfoArticle provided by Springer in its journal The Annals of Regional Science.
Volume (Year): 35 (2001)
Issue (Month): 3 ()
Note: Received: December 1999/Accepted: January 2001
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Web page: http://link.springer.de/link/service/journals/00168/index.htm
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Find related papers by JEL classification:
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
- R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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