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Localization of industry and vertical disintegration

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  • Thomas J. Holmes

Abstract

We argue that the rationalization gains often predicted by static applied general equilibrium models with imperfect competition and scale economies are artificially boosted by an unrealistic treatment of fixed costs. We introduce sunk costs into one such model calibrated with real-world data. We show how this changes the oligopoly game in a way significant enough to affect, both qualitatively and quantitatively, the outcome of a trade liberalization exercise.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 190.

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Date of creation: 1995
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Handle: RePEc:fip:fedmsr:190

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Keywords: Industrial location;

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References

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  1. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
  2. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  3. Spyros Vassilaikis, 1989. "Increasing Returns and Strategic Behavior: The Worker-Firm Ratio," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 622-636, Winter.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  5. George J. Stigler, Chairman, Universities-National Bureau Committee for Economic Research, 1955. "Business Concentration and Price Policy," NBER Books, National Bureau of Economic Research, Inc, number univ55-1, May.
  6. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
  7. M. A. Adelman, 1955. "Concept and Statistical Measurement of Vertical Integration," NBER Chapters, in: Business Concentration and Price Policy, pages 281-330 National Bureau of Economic Research, Inc.
  8. Marvin Goodfriend & John McDermott, 1994. "Early development," Working Paper 94-02, Federal Reserve Bank of Richmond.
  9. repec:fth:stanho:e-93-6 is not listed on IDEAS
  10. Locay, Luis, 1990. "Economic Development and the Division of Production between Households and Markets," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 965-82, October.
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