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Firms’ location Under taste and demand heterogeneity

Author

Listed:
  • Okubo, Toshihiro

    (---)

  • Picard, Pierre M.

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)
    ---)

Abstract

In this paper we build a quality-augmented version of an economic geography model where consumers have heterogenous tastes for a set of manufacturing varieties. We discuss a footloose capital model and a footloose entrepreneur model. We show that firms selling the goods with higher values select the region hosting the largest number of consumers. Larger countries thus get better access to the higher quality products. We also show that the effect of spatial selection on firms' spatial distribution crucially depends on the properties of the taste distribution across varieties. Finally, we show that taste heterogeneity smooths the agglomeration patterns but that it should be considered neither as a dispersion force nor as an agglomeration force. Indeed, the introduction of taste heterogeneity makes an initially dispersed economy less dispersed and an initially agglomerated economy less agglomerated.

Suggested Citation

  • Okubo, Toshihiro & Picard, Pierre M., 2008. "Firms’ location Under taste and demand heterogeneity," CORE Discussion Papers 2008071, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2008071
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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2008_71.pdf
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    Cited by:

    1. Picard, P.M., 2015. "Trade, economic geography and the choice of product quality," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 18-27.
    2. SAITO Hisamitsu & MATSUURA Toshiyuki, 2016. "Agglomeration Economies, Productivity, and Quality Upgrading," Discussion papers 16085, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    heterogeneous taste and quality; spatial selection; economic geography; agglomeration; home market effect.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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