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Finding the Sweet Spot in the City: a Monopolistic Competition Approach

Author

Listed:
  • Bespalova, Elizaveta
  • Moskalenko, Alim
  • Safin, Alexander
  • Sorokin, Constantine
  • Yagolkovsky, Andrey

Abstract

We propose a general equilibrium model to study the spatial inequality of consumers and firms within a city. Our mechanics rely on Dixit and Stiglitz monopolistic competition framework. The firms and consumers are continuously distributed across a two-dimensional space, there are iceberg-type costs both for goods shipping and workers com- muting (hence firms have variable marginal costs based on their location). Our main interest is in the equilibrium spatial distribution of wealth. We construct a model that is both tractable and general enough to stand the test of real city empirics. We provide some theoretical statements, but mostly the results of numerical simulations with the real Moscow data.

Suggested Citation

  • Bespalova, Elizaveta & Moskalenko, Alim & Safin, Alexander & Sorokin, Constantine & Yagolkovsky, Andrey, 2016. "Finding the Sweet Spot in the City: a Monopolistic Competition Approach," MPRA Paper 82873, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:82873
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    References listed on IDEAS

    as
    1. Pierre M. Picard & Takatoshi Tabuchi, 2010. "City with forward and backward linkages," Working Papers 2010/34, Institut d'Economia de Barcelona (IEB).
    2. Pierre-Philippe Combes & Thierry Mayer & Jacques-François Thisse, 2008. "Economic Geography: The Integration of Regions and Nations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311000, HAL.
    3. 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.
    4. Picard, Pierre M. & Tabuchi, Takatoshi, 2013. "On microfoundations of the city," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2561-2582.
    5. Pierre M. Picard & Takatoshi Tabuchi, 2010. "City with forward and backward linkages," Working Papers 2010/34, Institut d'Economia de Barcelona (IEB).
    6. 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.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Keywords

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    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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