Friday, October 9, 2009: 9:20 AM
Abstract
This article considers a regulated circular space where consumers and firms are located on different sides of the circle. The non-equivalence between the game induced by a convex linear quadratic transport cost and the game induced by a concave linear quadratic transport cost is shown. Furthermore, it is proven that quadratic transport costs cannot deliver price equilibrium for any location of firms, whereas price equilibrium exists for every possible firm location with specifically concave transport costs. In order to study the optimal size of the industrial area, two alternative demands are considered: a constant demand and a demand dependent upon the dimension of the commercial area. The size of product variety will be related to the type of central planner: liberal, socialist or mixed economy regulator. Maximum differentiation, minimum differentiation or intermediate cases may be obtained.
JEL Classification: C72, D43, L13, R38
Keywords: spatial competition, circular model, transport costs, regulator, sequential equilibrium.
This article considers a regulated circular space where consumers and firms are located on different sides of the circle. The non-equivalence between the game induced by a convex linear quadratic transport cost and the game induced by a concave linear quadratic transport cost is shown. Furthermore, it is proven that quadratic transport costs cannot deliver price equilibrium for any location of firms, whereas price equilibrium exists for every possible firm location with specifically concave transport costs. In order to study the optimal size of the industrial area, two alternative demands are considered: a constant demand and a demand dependent upon the dimension of the commercial area. The size of product variety will be related to the type of central planner: liberal, socialist or mixed economy regulator. Maximum differentiation, minimum differentiation or intermediate cases may be obtained.
JEL Classification: C72, D43, L13, R38
Keywords: spatial competition, circular model, transport costs, regulator, sequential equilibrium.