Welfare properties of spatial competition with location-dependent costs

We analyze a two-firm spatial competition model in which firms must transport raw materials from a raw material site to their locations in order to produce. The model has two equilibrium configurations: (i) a symmetric one in which firms locates equidistantly from the raw material site, and (ii) an...

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Bibliographic Details
Published in:Regional science and urban economics 2008, Vol.38 (1), p.32-48
Main Authors: Aiura, Hiroshi, Sato, Yasuhiro
Format: Article
Language:English
Subjects:
Asymmetric equilibrium
Asymmetry
Competition
Costs
Economic models
Enterprises
Material transportation
Materials handling
Raw materials
Social economics
Social welfare
Spatial competition
Studies
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Summary:We analyze a two-firm spatial competition model in which firms must transport raw materials from a raw material site to their locations in order to produce. The model has two equilibrium configurations: (i) a symmetric one in which firms locates equidistantly from the raw material site, and (ii) an asymmetric one in which one firm locates at the raw material site and the other locates distantly from it. We show that these two configurations are possible as multiple equilibria, that the asymmetric equilibrium is more efficient than the symmetric one, and that the social welfare first falls then rises as transport costs decline.
ISSN:0166-0462
1879-2308
DOI:10.1016/j.regsciurbeco.2007.08.007