Competition in the traditional sector does not matter for the ‘Core–Periphery’ model

Kristian Behrens (), Sergey Kichko and Evgeny Zhelobodko

Economics Letters, 2014, vol. 122, issue 1, 94-99

Abstract: We modify Paul Krugman’s (1991) ‘Core–Periphery’ model by replacing the traditional competitive sector with a monopolistically competitive one. We show that the structure of spatial equilibria remains the same as in the original model. This result continues to hold true under Cournot or Bertrand oligopolistic competition with free entry in the traditional sector. The key factor that explains why the nature of competition in the traditional sector does not matter for the spatial equilibria is constant expenditure shares–due to nested Cobb–Douglas and CES preferences–which imply that trade in the traditional sector is independent from its sectoral characteristics.

Keywords: Core–Periphery model; Spatial equilibrium; Imperfect competition; New economic geography (search for similar items in EconPapers)
JEL-codes: F12 F15 R12 R13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:122:y:2014:i:1:p:94-99

DOI: 10.1016/j.econlet.2013.11.002

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