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Equilibrium Locations of Vertically Linked Industries

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  • Venables, Anthony J

Abstract

There are two imperfectly competitive industries, upstream and downstream, and two locations. Where do the industries locate? Production occurs in both locations when transport costs are high (industry must be close to consumers) or low (factor prices determine location). Imperfect competition and transport costs create forward and backward linkages between upstream and downstream industries, and at intermediate transport costs these linkages determine location. There are multiple equilibria, some with agglomeration in a single location. Reducing transport costs from high to intermediate causes agglomeration and divergence of economic structure and income; further reductions may undermine the agglomeration, bringing convergence. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-359, May.
    • Handle: RePEc:ier:iecrev:v:37:y:1996:i:2:p:341-59
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    JEL classification:

    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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