IDEAS home Printed from https://ideas.repec.org/p/lbo/lbowps/2007_21.html

Why Should a Firm Choose to Limit the Size of its Market Area?

Author

Listed:

Abstract

We study when a monopolistically-competitive firm may optimally choose to limit the size of its market. This may be the case when the cost of serving the market with geographically dispersed customers is increasing in size. We also investigate the incentives faced by a firm to limit the reach of its market, when it adopts different pricing schemes. We show that under certain assumptions the derived equilibria are constrained socially optimal.

Suggested Citation

  • Marco Alderighi & Claudio A. Piga, 2007. "Why Should a Firm Choose to Limit the Size of its Market Area?," Discussion Paper Series 2007_21, Department of Economics, Loughborough University, revised Aug 2007.
    • Handle: RePEc:lbo:lbowps:2007_21
    as

    Download full text from publisher

    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/Alderighi-Piga-2007_21.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    2. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    3. Kohlberg, Elon, 1983. "Equilibrium store locations when consumers minimize travel time plus waiting time," Economics Letters, Elsevier, vol. 11(3), pages 211-216.
    4. Philip McCann, 1998. "The Economics of Industrial Location," Advances in Spatial Science, Springer, number 978-3-662-03702-7.
    5. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    6. Hsu, Song-ken, 1979. "Monopoly Output under Alternative Spatial Pricing Techniques: Comment," American Economic Review, American Economic Association, vol. 69(4), pages 678-679, September.
    7. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    8. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
    9. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9781107001411, January.
    10. Gianmarco I. P. Ottaviano & Diego Puga, 1998. "Agglomeration in the Global Economy: A Survey of the ‘New Economic Geography’," The World Economy, Wiley Blackwell, vol. 21(6), pages 707-731, August.
    11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    12. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-146, December.
    13. Usree Bandyopadhyay, 1999. "Trade and the Distribution Sector: Some Evidence for OECD Countries," Canadian Journal of Economics, Canadian Economics Association, vol. 32(5), pages 1299-1312, November.
    14. Anderson, Simon P. & de Palma, Andre, 2000. "From local to global competition," European Economic Review, Elsevier, vol. 44(3), pages 423-448, March.
    15. Oliver D. Hart, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 529-546.
    16. Piga, Claudio & Poyago-Theotoky, Joanna, 2005. "Endogenous R&D spillovers and locational choice," Regional Science and Urban Economics, Elsevier, vol. 35(2), pages 127-139, March.
    17. James F. Campbell, 1993. "One-to-Many Distribution with Transshipments: An Analytic Model," Transportation Science, INFORMS, vol. 27(4), pages 330-340, November.
    18. Reitzes, James D, 1992. "Quality Choice, Trade Policy, and Firm Incentives," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 817-835, November.
    19. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Optimal Bypass and Cream Skimming," American Economic Review, American Economic Association, vol. 80(5), pages 1042-1061, December.
    20. Chaug-Ing Hsu & I-Jin Tsai, 1999. "articles: Logistics cost, consumer demand, and retail establishment density," Papers in Regional Science, Springer;Regional Science Association International, vol. 78(3), pages 243-263.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Chiang, Shu-Hen & Lee, Chien-Chiang & Liao, Ying, 2021. "Exploring the sources of inflation dynamics: New evidence from China," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 313-332.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marco Alderighi, 2006. "Why Should a Firm Choose to Limit the Size of Its Market Area?," ERSA conference papers ersa06p900, European Regional Science Association.
    2. Marco Alderighi, 2003. "Niche Markets and Electronic Commerce," KITeS Working Papers 147, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2003.
    3. repec:lic:licosd:18707 is not listed on IDEAS
    4. Helena Marques, 2008. "Trade And Factor Flows In A Diverse Eu: What Lessons For The Eastern Enlargement(S)?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 364-408, April.
    5. Alessandro Olper & Valentina Raimondi, 2008. "Market Access Asymmetry in Food Trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(3), pages 509-537, October.
    6. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September.
    7. Venables, Anthony & Redding, Stephen & Overman, Henry, 2001. "The Economic Geography of Trade Production and Income: A Survey of Empirics," CEPR Discussion Papers 2978, C.E.P.R. Discussion Papers.
    8. Ehrenfeld, Wilfried, 2004. "Die Neue Ökonomische Geographie [The New Economic Geography]," MPRA Paper 12232, University Library of Munich, Germany.
    9. Russell Hillberry & David Hummels, 2002. "Explaining Home Bias in Consumption: The Role of Intermediate Input Trade," NBER Working Papers 9020, National Bureau of Economic Research, Inc.
    10. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment," Harvard Institute of Economic Research Working Papers 1850, Harvard - Institute of Economic Research.
    11. 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.
    12. Lugovskyy, Volodymyr & Skiba, Alexandre, 2015. "How geography affects quality," Journal of Development Economics, Elsevier, vol. 115(C), pages 156-180.
    13. Shon M. Ferguson, 2015. "Endogenous Product Differentiation, Market Size and Prices," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 45-61, February.
    14. Keith Head & Thierry Mayer, 2002. "Effet frontière, intégration économique et “Forteresse Europe”," Economie & Prévision, La Documentation Française, vol. 0(1), pages 71-92.
    15. James Harrigan, 2001. "Specialization and the Volume of Trade: Do the Data Obey the Laws?," NBER Working Papers 8675, National Bureau of Economic Research, Inc.
    16. Yilmazkuday, Hakan, 2009. "Distribution of Consumption, Production and Trade within the U.S," MPRA Paper 16361, University Library of Munich, Germany.
    17. José De Sousa & Anne-Célia Disdier, 2006. "La qualité du cadre juridique constitue-t-elle une barrière au commerce ?. Application aux économies en transition," Revue économique, Presses de Sciences-Po, vol. 57(1), pages 135-149.
    18. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g8o1h74in is not listed on IDEAS
    19. Takatoshi Tabuchi & Kristian Behrens & Andrea R. Lamorgese, 2004. "Testing the Home Market Effects in a Multi-country World: The Theory," Econometric Society 2004 Far Eastern Meetings 595, Econometric Society.
    20. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    21. Mayer, Thierry & Pierre-Phillippe Combes & Miren Lafourcade, 2003. "Can Business and Social Networks Explain the Border Effect Puzzle?," Royal Economic Society Annual Conference 2003 150, Royal Economic Society.
    22. Willert, Bianca, 2017. "How intermediates trade affects the formation of free trade agreements: A study analyzing pairwise trade flows of 70 countries," Thuenen-Series of Applied Economic Theory 147, University of Rostock, Institute of Economics, revised 2017.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lbo:lbowps:2007_21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Huw Edwards (email available below). General contact details of provider: https://edirc.repec.org/data/delbouk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.