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Firms' locations under demand heterogeneity

Pierre Picard () and Toshihiro Okubo ()

Regional Science and Urban Economics, 2012, vol. 42, issue 6, 961-974

Abstract: In this paper, we develop an economic geography model in which firms sell product varieties with heterogeneous demands. We show that firms that sell products with higher demand choose to establish their plants in larger countries, which provide better access to the most frequently demanded and valuable varieties. The impact of spatial sorting depends on the skewness of the distribution of demand intensity across varieties. In a model in which only capital moves across regions, demand heterogeneity diminishes the amount of capital invested in larger countries. In a model in which the work force moves across regions, demand heterogeneity is found to eliminate dramatic changes in the location patterns and to result in the asymmetric dispersion of workers rather than their symmetric dispersion or complete agglomeration in a specific region.

Keywords: Heterogeneous taste and quality; Spatial selection; Economic geography; Agglomeration; Home market effect (search for similar items in EconPapers)
JEL-codes: F12 F15 R11 R12 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Firms' locations under demand heterogeneity (2012) Downloads
Working Paper: Firms Location under Demand Heterogeneity (2011) Downloads
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