Working Papers, Department of Economics, Lund University
Cournot Competition, Market Size Effects, and Agglomeration
Abstract: We analyse a two-stage location-quantity game with many
firms and two regions. We show that the firms will never agglomerate in the
same location if transportation is costly between the regions. We also
analyse the effects of differences in market size and economic integration
on the allocation of industrial activity. For high levels of trade costs
firms locate in different regions. Lowering the trade costs beyond a
critical level triggers an agglomeration of industry in the larger region.
This process of agglomeration is gradual in nature and trade costs have to
be successively lowered for a full-scale agglomeration to take place.
Keywords: agglomeration; cross-hauling; market size effects; spatial Cournot competition; (follow links to similar papers)
JEL-Codes: D43; F12; L13; R30; (follow links to similar papers)
44 pages, March 11, 2005
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