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Agglomeration and the product mix

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  • Dalvai, Wilfried

Abstract

Worldwide trade flows are dominated by high-productivity firms, that have a large range of products. Since the product range of firms reflects partly trade flows, it is a source of economic differences in space. In this paper, I analyze the effects of the product mix of firms on agglomeration. I build a theoretical model of multiproduct firms à la Mayer, Melitz, and Ottaviano (2014, AER), expand it with skilled, mobile workers and a spatial equilibrium. I show that a larger product mix of firms in a region favours dispersion. The product mix influences the indirect utility through two channels, the wage and consumer surplus. A larger product mix decreases the wage differential between the two regions through a more competitive environment and thus strengthening the dispersion force. More competition means less profits and therefore a lower wage for skilled workers. On the other hand a more competitive environment means a higher consumer surplus which diminishes agglomeration forces.

Suggested Citation

  • Dalvai, Wilfried, 2016. "Agglomeration and the product mix," Thuenen-Series of Applied Economic Theory 145, University of Rostock, Institute of Economics.
    • Handle: RePEc:zbw:roswps:145
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    References listed on IDEAS

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    More about this item

    Keywords

    Agglomeration; Heterogenous Firms; Product Mix; Migration;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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