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Regional inequality and product variety

  • BEHRENS, Kristian
  • THISSE, Jacques-François

We investigate how differences in set-up costs of various types affect the trade-off between global effciency and spatial equity and show that the standard assumption of symmetry in fixed costs masks the existence of an interesting effect: the range of available varieties varies depends on the spatial distribution of firms. In such a setting, even when the market outcome leads to excessive agglomeration under symmetric fixed costs, a planner opts for asymmetric fixed costs and more agglomeration. The reason is that the losses induced by more agglomeration are offset by the gains due to additional product variety.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2005009.

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Date of creation: 00 Feb 2005
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Handle: RePEc:cor:louvco:2005009
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  1. Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, . "The Regulation of Entry," Working Paper 19462, Harvard University OpenScholar.
  2. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Integration, agglomeration and the political economics of factor mobility," CORE Discussion Papers RP -1541, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jonathan Haskel & Holger Wolf, 2001. "The Law of One Price - A Case Study," NBER Working Papers 8112, National Bureau of Economic Research, Inc.
  4. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  5. Ottaviano, Gianmarco I.P. & van Ypersele, Tanguy, 2005. "Market size and tax competition," Journal of International Economics, Elsevier, vol. 67(1), pages 25-46, September.
  6. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Agglomeration and economic geography," CORE Discussion Papers RP -1725, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 284-314, June.
  8. Charles Engel & John H. Rogers, 1995. "How wide is the border?," International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System (U.S.).
  9. Keith Head & Thierry Mayer & John Ries, 2002. "On the pervasiveness of home market effects," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  10. Baldwin, Richard & Martin, Philippe, 2003. "Agglomeration and Regional Growth," CEPR Discussion Papers 3960, C.E.P.R. Discussion Papers.
  11. 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.
  12. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, June.
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