Agglomeration in a Core-Periphery Model with Vertically and Horizontally Integrated Firms
AbstractThis paper analyses the effect of allowing for a more general production structure in the core-periphery (CP) model. Two special cases of fully horizontally- and vertically-integrated firms are treated. The case of horizontally-integrated firms is a counter-example to the strong agglomeration effects found in the CP model. A symmetric equilibrium will always be stable and hence agglomeration is prevented. The introduction of vertically-integrated firms that can separate the location of headquarter activities from the location of production, has two effects. First, it tends to break the symmetry of the original CP model and thus lead to more agglomeration. Second, it also tends to decrease the parameter space in which full agglomeration occurs, and therefore leads to less agglomeration.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1607.
Date of creation: Mar 1997
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