Regional inequality and product variety

Kristian Behrens () and Jacques Thisse ()

No 2005009, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We investigate how differences in set-up costs of various types affect the trade-off between global effciency and spatial equity and show that the standard assumption of symmetry in Þxed costs masks the existence of an interesting effect: the range of available varieties varies depends on the spatial distribution of Þrms. In such a setting, even when the market outcome leads to excessive agglomeration under symmetric Þxed costs, a planner opts for asymmetric Þxed costs and more agglomeration. The reason is that the losses induced by more agglomeration are offset by the gains due to additional product variety.

Keywords: Þxed costs; set-up costs; market size; international trade; home market effect (search for similar items in EconPapers)
JEL-codes: F12 F15 R12 R38 (search for similar items in EconPapers)
Date: 2005-02-01
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