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Cournot Competition, Market Size Effects, and Agglomeration

We analyse a two-stage location-quantity game with many firms and two regions. We show that the firms will never agglomerate in the same location if transportation is costly between the regions. We also analyse the effects of differences in market size and economic integration on the allocation of industrial activity. For high levels of trade costs firms locate in different regions. Lowering the trade costs beyond a critical level triggers an agglomeration of industry in the larger region. This process of agglomeration is gradual in nature and trade costs have to be successively lowered for a full-scale agglomeration to take place.

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File URL: http://project.nek.lu.se/publications/workpap/Papers/WP05_23.pdf
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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2005:23.

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Length: 44 pages
Date of creation: 11 Mar 2005
Date of revision:
Handle: RePEc:hhs:lunewp:2005_023
Contact details of provider: Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
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  1. Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 87-102, February.
  2. d'Aspremont, Cl. & Jaskold Gabszewicz, J. & Thisse, J. -F., 1983. "Product differences and prices," Economics Letters, Elsevier, vol. 11(1-2), pages 19-23.
  3. Pierre-Philipe COMBES, 1997. "Industrial Agglomeration under Cournot Competition," Annales d'Economie et de Statistique, ENSAE, issue 45, pages 161-182.
  4. Keith Head & Thierry Mayer & John Ries, 2000. "On the Pervasiveness of Home Market Effects," Econometric Society World Congress 2000 Contributed Papers 0862, Econometric Society.
  5. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  6. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, August.
  7. Kats, Amoz, 1995. "More on Hotelling's stability in competition," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 89-93, March.
  8. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Novshek, William., 1984. "On the Existence of Cournot Equilibrium," Working Papers 517, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  11. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
  12. Pflüger, Michael P., 2001. "A Simple, Analytically Solvable Chamberlinian Agglomeration Model," IZA Discussion Papers 359, Institute for the Study of Labor (IZA).
  13. Krugman, Paul & Venables, Anthony J, 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers.
  14. James Brander & Paul Krugman, 1982. "A 'Reciprocal Dumping' Model of International Trade," Working Papers 513, Queen's University, Department of Economics.
  15. 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.
  16. Pal, Debashis, 1998. "Does Cournot competition yield spatial agglomeration?," Economics Letters, Elsevier, vol. 60(1), pages 49-53, July.
  17. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  18. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
  19. 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.
  20. Anderson, Simon P & Neven, Damien J, 1991. "Cournot Competition Yields Spatial Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
  21. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
  22. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
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