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Firm Location Choice in the Presence of a Free Rider Problem

  • Elie Appelbaum

    ()

    (Department of Economics, York University)

  • Eliakim Katz

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.

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File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/2003/elie-2003-location.pdf
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Paper provided by York University, Department of Economics in its series Working Papers with number 2003_6.

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Length: 8 pages
Date of creation: Nov 2003
Date of revision:
Handle: RePEc:yca:wpaper:2003_6
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  1. Appelbaum, Elie & Weber, Shlomo, 1992. "A note on the free rider problem in oligopoly," Economics Letters, Elsevier, vol. 40(4), pages 473-480, December.
  2. Elie Appelbaum & Eliakim Katz, 2005. "Political extremism in the presence of a free rider problem," Working Papers 2005_3, York University, Department of Economics.
  3. Michael Waldman, 1985. "Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem," UCLA Economics Working Papers 364, UCLA Department of Economics.
  4. Donnenfeld, Shabtai & Weber, Shlomo, 1992. "Vertical product differentiation with entry," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 449-472, September.
  5. 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.
  6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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