Agglomeration and the product mix

Wilfried Dalvai

No 145, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics

Abstract: Worldwide trade flows are dominated by high-productivity firms, that have a large range of products. Since the product range of firms reflects partly trade flows, it is a source of economic differences in space. In this paper, I analyze the effects of the product mix of firms on agglomeration. I build a theoretical model of multiproduct firms à la Mayer, Melitz, and Ottaviano (2014, AER), expand it with skilled, mobile workers and a spatial equilibrium. I show that a larger product mix of firms in a region favours dispersion. The product mix influences the indirect utility through two channels, the wage and consumer surplus. A larger product mix decreases the wage differential between the two regions through a more competitive environment and thus strengthening the dispersion force. More competition means less profits and therefore a lower wage for skilled workers. On the other hand a more competitive environment means a higher consumer surplus which diminishes agglomeration forces.

Keywords: Agglomeration; Heterogenous Firms; Product Mix; Migration (search for similar items in EconPapers)
JEL-codes: F12 L11 R11 R12 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-geo, nep-ind and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:roswps:145

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