The Circular City with Heterogenous Firms

Marco Alderighi () and Claudio Piga
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Marco Alderighi: Università della Valle d'Aosta

Working Paper series from Rimini Centre for Economic Analysis

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: Localised Competition; market efficiency; cost heterogeneity; large markets (search for similar items in EconPapers)
JEL-codes: D61 L11 (search for similar items in EconPapers)
Date: 2008-01
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Citations: View citations in EconPapers (4)

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Working Paper: The Circular City with Heterogeneous Firms (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:16_08

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