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Networks and firm location


  • José Pontes



This paper models the decision of vertically-linked firms to build either partitioned or connected networks of supply of an intermediate good. In each case, the locations of upstream and downstream firms are correlated. Input specificity is related both to variable costs (transport costs of the input) and fixed costs (learning costs of the use of the input). When both are low, a connected network emerges and a partitioned pattern arises in the opposite case. In the boundary region, there are multiple equilibria, either asymmetric (mixed network) or symmetric.
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Suggested Citation

  • José Pontes, 2007. "Networks and firm location," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(4), pages 897-909, December.
  • Handle: RePEc:spr:anresc:v:41:y:2007:i:4:p:897-909
    DOI: 10.1007/s00168-007-0131-9

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    References listed on IDEAS

    1. Norman, George & Thisse, Jacques-Francois, 1999. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 345-372, September.
    2. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-888, September.
    3. Rachel E. Kranton & Deborah F. Minehart, 2000. "Networks versus Vertical Integration," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 570-601, Autumn.
    4. Oliver Lorz & Matthias Wrede, 2008. "Standardization of intermediate goods and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 517-536, May.
    5. Williamson, Oliver E, 1981. "The Modern Corporation: Origins, Evolution, Attributes," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1537-1568, December.
    6. Jose Pedro Pontes, 2005. "Input Specificity and Location," Working Papers Department of Economics 2005/01, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    7. Paul Belleflamme & Eric Toulemonde, 2003. "Product differentiation in successive vertical oligopolies," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 523-545, August.
    8. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    9. Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
    10. Bonaccorsi, Andrea & Giuri, Paola, 2001. "The long-term evolution of vertically-related industries," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1053-1083, July.
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    More about this item


    R30; L13;

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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