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

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Author Info
Marco Alderighi () (University of Valle d'Aosta, Italy.)
Claudio A. Piga () (Dept of Economics, Loughborough University)

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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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Publisher 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
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/ec/Research.htm
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Related research
Keywords: Monopolistic competition Transport costs Endogenous fixed costs Overlapping market areas

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Optimal Bypass and Cream Skimming," American Economic Review, American Economic Association, vol. 80(5), pages 1042-61, December. [Downloadable!] (restricted)
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  5. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June. [Downloadable!] (restricted)
  6. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," Review of Economic Studies, Blackwell Publishing, vol. 52(4), pages 529-46, October. [Downloadable!] (restricted)
  8. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Piga, Claudio & Poyago-Theotoky, Joanna, 2005. "Endogenous R&D spillovers and locational choice," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 127-139, March. [Downloadable!] (restricted)
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  11. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Blackwell Publishing, vol. 36(2), pages 131-46, December. [Downloadable!] (restricted)
  12. Kohlberg, Elon, 1983. "Equilibrium store locations when consumers minimize travel time plus waiting time," Economics Letters, Elsevier, vol. 11(3), pages 211-216. [Downloadable!] (restricted)
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