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Regional inequality and product variety

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  • BEHRENS, Kristian
  • THISSE, Jacques-François

Abstract

We investigate how differences in set-up costs of various types affect the trade-off between global effciency and spatial equity and show that the standard assumption of symmetry in fixed costs masks the existence of an interesting effect: the range of available varieties varies depends on the spatial distribution of firms. In such a setting, even when the market outcome leads to excessive agglomeration under symmetric fixed costs, a planner opts for asymmetric fixed costs and more agglomeration. The reason is that the losses induced by more agglomeration are offset by the gains due to additional product variety.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005009.

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Date of creation: 00 Feb 2005
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Handle: RePEc:cor:louvco:2005009

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Keywords: fixed costs; set-up costs; market size; international trade; home market effect;

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References

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  1. Keith Head & Thierry Mayer & John Ries, 2000. "On the Pervasiveness of Home Market Effects," Econometric Society World Congress 2000 Contributed Papers 0862, Econometric Society.
  2. Engel, C. & Rogers, J.H., 1995. "How Wide is the Border?," Papers 4-95-16, Pennsylvania State - Department of Economics.
  3. Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 2003. "Agglomeration and Economic Geography," CEPR Discussion Papers 3838, C.E.P.R. Discussion Papers.
  4. Djankov, Simeon & La Porta, Rafael & López-de-Silanes, Florencio & Shleifer, Andrei, 2001. "The Regulation of Entry," CEPR Discussion Papers 2953, C.E.P.R. Discussion Papers.
  5. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, December.
  6. Baldwin, Richard & Martin, Philippe, 2003. "Agglomeration and Regional Growth," CEPR Discussion Papers 3960, C.E.P.R. Discussion Papers.
  7. Ottaviano, G.I.P. & Thisse, J.-F., 1999. "Integration, Agglomeration and the Political Economics of Factor Mobility," Economics Working Papers eco99/27, European University Institute.
  8. OTTAVIANO, Gianmarco & TABUCHI , Takatoshi & THISSE, Jacques-François, . "Agglomeration and trade revisited," CORE Discussion Papers RP -1553, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Jonathan Haskel & Holger Wolf, 2001. "The Law of One Price - A Case Study," NBER Working Papers 8112, National Bureau of Economic Research, Inc.
  10. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 284-314, June.
  11. Ottaviano, Gianmarco I.P. & van Ypersele, Tanguy, 2005. "Market size and tax competition," Journal of International Economics, Elsevier, vol. 67(1), pages 25-46, September.
  12. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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Cited by:
  1. Toshihiro Okubo & Vincent Rebeyrol, 2006. "Home Market Effect and Regulation Costs - Homogeneous Firm and Heterogeneous Firm Trade Models," IHEID Working Papers 02-2006, Economics Section, The Graduate Institute of International Studies.
  2. Nuria Domeque Claver & Carmen Fillat Castejón & Fernando Sanz Gracia, 2011. "The home market effect in the Spanish industry, 1965–1995," The Annals of Regional Science, Springer, vol. 46(2), pages 379-396, April.

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