AGGLOMERATION VERSUS PRODUCT VARIETY: IMPLICATIONS FOR REGIONAL INEQUALITIES*

Kristian Behrens () and Jacques Thisse

Journal of Regional Science, 2006, vol. 46, issue 5, 867-880

Abstract: ABSTRACT We investigate how cross‐country differences in firms' fixed set‐up costs affect the trade‐off between global efficiency and spatial equity. Our analysis reveals that the standard assumption of symmetry in set‐up costs masks the existence of an interesting effect: the range of available varieties depends on the spatial distribution of firms. In such a setting, where the market outcome leads to excessive agglomeration in the symmetric case, a planner may opt for asymmetric set‐up costs and even more agglomeration. We show that the planner will always favor lower set‐up costs in the large country with more agglomeration when the consumer's marginal preference for variety is high, or with less agglomeration when the consumer's marginal preference for variety is low.

Date: 2006
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https://doi.org/10.1111/j.1467-9787.2006.00487.x

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Working Paper: Agglomeration versus product variety: implications for regional inequalities (2006)
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