Revisiting Long-Run Industry Supply
Scale economies play an important role in the "new economic geography" and in "product life cycle" models. These models have important implications for world trade, innovation, and the re-distribution of wealth. Unfortunately, existing treatments of long run industry supply, internal/external scale economies, and market concentration are very fragmented. This paper contains a simple, unified model of long run industry supply. The difference between internal and external scale economies is examined. The impact of scale economies on industry supply is identified and their role in industry equilibrium is discussed. The effect of market concentration is also explored. Among other results, I find reasonable conditions under which the monopolist will produce more output at a lower price than would occur under competition. This surprising result is due to the monopolist's ability to internalize external scale economies.
Volume (Year): 24 (1998)
Issue (Month): 2 (Spring)
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- Paul Krugman, 1990.
"Increasing Returns and Economic Geography,"
NBER Working Papers
3275, National Bureau of Economic Research, Inc.
- Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
- Krugman, Paul, 1991. "History and Industry Location: The Case of the Manufacturing Belt," American Economic Review, American Economic Association, vol. 81(2), pages 80-83, May.
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