Trade and Location with Horizontal and Vertical Multi‐region Firms

We analyse the effect on agglomeration tendencies of allowing multi‐region firms in a standard trade and location model, the core–periphery (CP) model developed by Kurgman (1991). The introduction of horizontal multi‐region firms mitigates the agglomeration effects found in the CP model by reducing the range of trade costs for which the core–periphery equilibrium occurs. The introduction of vertical multi‐region firms that separate the location of headquarters and plants has two counteracting effects. While headquarters exhibit a strong tendency to concentrate, plants tend to spread out. The equilibrium is always asymmetric in spite of the underlying symmetry of the model.