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A Geographic Game with Intermediate Goods

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  • José Pedro Pontes

Abstract

The paper treats a noncooperative game where an upstream firm and two downstream firms select locations in a spatial system made by two asymmetric countries. The location of the upstream firm is indeterminate and it is assigned to the smaller country, in order to avoid triviality of the location problem. The Nash equilibria of locations of the downstream firms is characterized in the parameter space (coefficient of input transactions, transport cost) although not everywhere uniquely. Keeping the degree of technological interdependency high, economic integration, as measured by the decline of transport costs, shifts production from the country where the input is produced to the larger country. In opposition, keeping transport costs low, technical progress, as measured by the intensity of input transactions, shifts production from the large market to the country where the input is produced.

Suggested Citation

  • José Pedro Pontes, 2001. "A Geographic Game with Intermediate Goods," Working Papers Department of Economics 2001/10, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
  • Handle: RePEc:ise:isegwp:wp102001
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    Keywords

    Noncooperative games; Location; Intermediate Goods; New Economic Geography..;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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