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Agglomeration versus product variety: implications for regional inequalities

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  • BEHRENS, Kristian
  • THISSE, Jacques-François

Abstract

ABSTRACT We investigate how cross‐country differences in firms' fixed set‐up costs affect the trade‐off between global efficiency and spatial equity. Our analysis reveals that the standard assumption of symmetry in set‐up costs masks the existence of an interesting effect: the range of available varieties depends on the spatial distribution of firms. In such a setting, where the market outcome leads to excessive agglomeration in the symmetric case, a planner may opt for asymmetric set‐up costs and even more agglomeration. We show that the planner will always favor lower set‐up costs in the large country with more agglomeration when the consumer's marginal preference for variety is high, or with less agglomeration when the consumer's marginal preference for variety is low.
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Suggested Citation

  • BEHRENS, Kristian & THISSE, Jacques-François, 2006. "Agglomeration versus product variety: implications for regional inequalities," LIDAM Reprints CORE 1947, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1947
    DOI: 10.1111/j.1467-9787.2006.00487.x
    Note: In : Journal of Regional Science, 46(5), 867-880, 2006
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    Cited by:

    1. Sovik Mukherjee & Vivekananda Mukherjee, 2023. "“Love for variety,” outside option and extensive margin of demand," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 425-449, September.
    2. Georgios N. Magoulios & Dimitrios Kydros & Anna Trichopoulou, 2019. "Internationalization of Greek Social Enterprises as a Sustainability and Development Strategy," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 17(2), pages 239-266.

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