Firms Location under Demand Heterogeneity

Pierre Picard and Toshihiro Okubo

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In this paper we build an economic geography model where firms sell product varieties with heterogenous demands. We show that firms selling the products with higher demands select to set up their plants in larger countries. Larger countries do not only get better access to more varieties but also to the most demanded and valuable ones. The impact of such a spatial selection on firms' location choice depends on the skewness of the distribution of demand intensity across varieties. In a model where only capital moves across regions, demand heterogeneity generally diminishes the amount of capital invested in the larger country. In a model where the work force moves across regions, demand heterogeneity is shown to eliminate dramatic changes in the location patterns and to result in the asymmetric dispersion of workers, rather their symmetric dispersion or complete agglomeration in a specific region.

Keywords: heterogeneous taste and quality; spatial selection; economic geography; agglomeration; home market effect (search for similar items in EconPapers)
JEL-codes: F12 F15 R11 R12 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://wwwfr.uni.lu/content/download/36997/449341/ ... %20heterogeneity.pdf (application/pdf)

Related works:
Journal Article: Firms' locations under demand heterogeneity (2012)
Working Paper: Firms' locations under demand heterogeneity (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:11-07

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