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Why Should a Firm Choose to Limit the Size of its Market Area?

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  • Marco Alderighi

    ()
    (University of Valle d'Aosta, Italy.)

  • Claudio A. Piga

    ()
    (Dept of Economics, Loughborough University)

Abstract

We study when a monopolistically-competitive firm may optimally choose to limit the size of its market. This may be the case when the cost of serving the market with geographically dispersed customers is increasing in size. We also investigate the incentives faced by a firm to limit the reach of its market, when it adopts different pricing schemes. We show that under certain assumptions the derived equilibria are constrained socially optimal.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/Alderighi-Piga-2007_21.pdf
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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_21.

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Date of creation: Aug 2007
Date of revision: Aug 2007
Handle: RePEc:lbo:lbowps:2007_21

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Postal: Loughborough, Leicestershire, LE11 3TU
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Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
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Keywords: Monopolistic competition; Transport costs; Endogenous fixed costs; Overlapping market areas;

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