IDEAS home Printed from
   My bibliography  Save this article

Monopolistic competition, increasing returns, agglomeration, and transport costs


  • Johan Klaesson

    () (Jönköping International Business School, Jönköping University, P.O. Box 1026, SE-551 11 Jönköping, Sweden)


This paper presents a model where production concentrated in one place is compared with dispersed production. Concentrated production can attain a higher level of productivity but must incur transport costs. Dispersed production, on the other hand, has a lower productivity level but need no transportation. In order to avoid unnecessary complications, output per capita is used as an objective function. Transport cost is measured in units of output and will therefore affect the objective function directly. The model uses a linkage approach where a final output is produced under constant returns to scale. This production has increasing returns to the number of differentiated inputs. The differentiated intermediate inputs are produced subject to increasing returns to scale in a framework of Chamberlinian monopolistic competition. The size of the market determines the number of intermediate inputs that the local economy can accommodate. In this way the model formalises Adam Smith's theorem on the division of labour being limited by the extent of the market. The paper examines how the break-even point between the two ways of organising production is affected by (i) changes in transport cost and market density and (ii) shifts in technology for producers of intermediaries and the final output.

Suggested Citation

  • Johan Klaesson, 2001. "Monopolistic competition, increasing returns, agglomeration, and transport costs," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 35(3), pages 375-394.
  • Handle: RePEc:spr:anresc:v:35:y:2001:i:3:p:375-394
    Note: Received: December 1999/Accepted: January 2001

    Download full text from publisher

    File URL:
    Download Restriction: Access to the full text of the articles in this series is restricted

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Erkut, Erhan & Neuman, Susan, 1989. "Analytical models for locating undesirable facilities," European Journal of Operational Research, Elsevier, vol. 40(3), pages 275-291, June.
    2. Charles Revelle & David Marks & Jon C. Liebman, 1970. "An Analysis of Private and Public Sector Location Models," Management Science, INFORMS, vol. 16(11), pages 692-707, July.
    3. Owen, Susan Hesse & Daskin, Mark S., 1998. "Strategic facility location: A review," European Journal of Operational Research, Elsevier, vol. 111(3), pages 423-447, December.
    4. Kohlhase, Janet E., 1991. "The impact of toxic waste sites on housing values," Journal of Urban Economics, Elsevier, vol. 30(1), pages 1-26, July.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:eee:rensus:v:77:y:2017:i:c:p:273-286 is not listed on IDEAS

    More about this item

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:anresc:v:35:y:2001:i:3:p:375-394. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.