The Circular City with Heterogeneous Firms

Marco Alderighi () and Claudio Piga ()
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Marco Alderighi: University of Valle d'Aosta, Italy.

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.

Keywords: Localized competition; market effciency, cost heterogeneity; large markets. (search for similar items in EconPapers)
JEL-codes: L11 D61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-geo, nep-ifn, nep-ind, nep-mic and nep-ure
Date: 2008-07, Revised 2008-07

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Persistent link: http://EconPapers.repec.org/RePEc:lbo:lbowps:2008_03

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