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Regional inequality and product variety

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  • Kristian, BEHRENS
  • Jacques-François, THISSE

Abstract

We investigate how differences in set-up costs of various types affect the trade-off between global efficiency 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, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005013.

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Length: 15
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:ctl:louvec:2005013

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

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References

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  1. Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei & Lopez de Silanes, Florencio, 2001. "The regulation of entry," Policy Research Working Paper Series 2661, The World Bank.
  2. 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.
  3. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
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  5. Baldwin, Richard & Martin, Philippe, 2003. "Agglomeration and Regional Growth," CEPR Discussion Papers 3960, C.E.P.R. Discussion Papers.
  6. Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 1999. "Integration, Agglomeration and the Political Economics of Factor Mobility," CEPR Discussion Papers 2185, C.E.P.R. Discussion Papers.
  7. Jonathan Haskel & Holger C. Wolf, 2001. "The Law of One Price - A Case Study," CESifo Working Paper Series 428, CESifo Group Munich.
  8. 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.
  9. Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 2003. "Agglomeration and Economic Geography," CEPR Discussion Papers 3838, C.E.P.R. Discussion Papers.
  10. Head, Charles Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," CEPR Discussion Papers 3454, C.E.P.R. Discussion Papers.
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  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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