Firm Location Choice in the Presence of a Free Rider Problem
In this paper we show that, in the presence of an investment that provides all firms in an industry with positive externalities, a firm may choose an ‘extreme policy’. Specifically, within the context of a locational game, we show that a firm may make a positive profit by locating outside a city, if in doing so it manages to induce other firms to undertake investments that they would not undertake if the first firm was located within the city. Our finding is likely to have implications for similar locational issues such as ones facing political parties.
|Date of creation:||Nov 2003|
|Date of revision:|
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- Elie Appelbaum & Eliakim Katz, 2005.
"Political extremism in the presence of a free rider problem,"
2005_3, York University, Department of Economics.
- Elie Appelbaum & Eliakim Katz, 2007. "Political extremism in the presence of a free rider problem," Public Choice, Springer, vol. 133(1), pages 31-40, October.
- Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Appelbaum, Elie & Weber, Shlomo, 1992. "A note on the free rider problem in oligopoly," Economics Letters, Elsevier, vol. 40(4), pages 473-480, December.
- Michael Waldman, 1987.
"Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem,"
Review of Economic Studies,
Oxford University Press, vol. 54(2), pages 301-310.
- Michael Waldman, 1985. "Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem," UCLA Economics Working Papers 364, UCLA Department of Economics.
- B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
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