Firms Location under Demand Heterogeneity
Pierre Picard () and
Toshihiro Okubo ()
CREA Discussion Paper Series from Center for Research in Economic Analysis, University of Luxembourg
In this paper we build an economic geography model where firms sell product varieties with heterogenous demands. We show that firms selling the products with higher demands select to set up their plants in larger countries. Larger countries do not only get better access to more varieties but also to the most demanded and valuable ones. The impact of such a spatial selection on firms' location choice depends on the skewness of the distribution of demand intensity across varieties. In a model where only capital moves across regions, demand heterogeneity generally diminishes the amount of capital invested in the larger country. In a model where the work force moves across regions, demand heterogeneity is shown to eliminate dramatic changes in the location patterns and to result in the asymmetric dispersion of workers, rather 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)
New Economics Papers: this item is included in nep-geo and nep-ure
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Journal Article: Firms' locations under demand heterogeneity (2012)
Working Paper: Firms' locations under demand heterogeneity (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:11-07
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