Regional inequality and product variety

Kristian Behrens () and Jacques Thisse ()

No 2005013, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: We investigate how differences in set-up costs of various types affect the trade-off between global efficiency and spatial equity and show that the standard assumption of symmetry in fixed costs masks the existence of an interesting effect : the range of available varieties varies depends on the spatial distribution of firms. In such a setting, even when the market outcome leads to excessive agglomeration under symmetric fixed costs, a planner opts for asymmetric fixed 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: fixed costs; set-up costs; market size; international trade; homemarket effect (search for similar items in EconPapers)
JEL-codes: F12 F15 R12 R38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo
Date: 2005-01-23
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