IDEAS home Printed from https://ideas.repec.org/a/spr/inrvec/v62y2015i4p337-361.html
   My bibliography  Save this article

A spatial equilibrium model of local nonmarket production with capacity constraints

Author

Listed:
  • T. Heikkinen

    ()

Abstract

This paper studies the autonomous formation of regions with local nonmarket production in the presence of profit-maximizing producers. The approach is based on a spatial equilibrium model with a linear transport cost. A Hotelling duopoly model is extended by allowing the households, uniformly distributed on a line, to become local producers. Due to capacity restrictions, local production covers at most a given percentage of a fixed household demand, whereas the remaining portion is bought from one of the profit-maximizing suppliers. Local production is pro-competitive, implying a lower equilibrium price than the standard Hotelling model, in spite of capacity restrictions. A price equilibrium where the firms are located symmetrically within the quartiles may exist, assuming a sufficient degree of self-sufficiency of local production. A higher level of capacity restrictions implies a higher equilibrium price. Local production may emerge as an equilibrium outcome, assuming the production does not require strong economies of scale and assuming the households are willing to invest in local production. Due to imperfect competition, the equilibrium number of local producers is positive whenever local production is optimal. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • T. Heikkinen, 2015. "A spatial equilibrium model of local nonmarket production with capacity constraints," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 62(4), pages 337-361, December.
  • Handle: RePEc:spr:inrvec:v:62:y:2015:i:4:p:337-361
    DOI: 10.1007/s12232-014-0220-x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s12232-014-0220-x
    Download Restriction: Access to full text is restricted to subscribers.

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

    References listed on IDEAS

    as
    1. Gronau, Reuben, 1977. "Leisure, Home Production, and Work-The Theory of the Allocation of Time Revisited," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1099-1123, December.
    2. Curtis, Fred, 2003. "Eco-localism and sustainability," Ecological Economics, Elsevier, vol. 46(1), pages 83-102, August.
    3. Asanga Gunawansa, 2011. "Contractual and policy challenges to developing ecocities," Sustainable Development, John Wiley & Sons, Ltd., vol. 19(6), pages 382-390, November.
    4. Martinez, Stephen W. & Hand, Michael S. & Da Pra, Michelle & Pollack, Susan L. & Ralston, Katherine L. & Smith, Travis A. & Vogel, Stephen J. & Clark, Shellye & Lohr, Luanne & Low, Sarah A. & Newman, , 2010. "Local Food Systems: Concepts, Impacts, and Issues," Economic Research Report 96635, United States Department of Agriculture, Economic Research Service.
      • Martinez, Steve & Hand, Michael & Da Pra, Michelle & Pollack, Susan & Ralston, Katherine & Smith, Travis & Vogel, Stephen & Clarke, Shellye & Lohr, Luanne & Low, Sarah & Newman, Constance, 2010. "Local food systems: concepts, impacts, and issues," MPRA Paper 24313, University Library of Munich, Germany.
    5. Christian Ahlin & Peter D. Ahlin, 2013. "Product Differentiation Under Congestion: Hotelling Was Right," Economic Inquiry, Western Economic Association International, vol. 51(3), pages 1750-1763, July.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
    8. T. Heikkinen, 2014. "A Hotelling model of spatial competition with local production," Letters in Spatial and Resource Sciences, Springer, vol. 7(2), pages 103-120, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Spatial economics; Local production; Nonmarket production; Price equilibrium; Duopoly; Degrowth; Ecocities; D4; L1; Q5; R2; R32;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

    Statistics

    Access and download statistics

    Corrections

    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:inrvec:v:62:y:2015:i:4:p:337-361. 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: http://www.springer.com .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.