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The multi-market firm, transportation costs, and the separation of the output and allocation decisions

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  • Ardeshir J. Dalal
  • Eliakim Katz

Abstract

Despite the documented importance of transport costs for firms with sales in geographically separated markets, theoretical analyses typically ignore such costs. This paper analyzes the effects of transport costs for a risk averse, competitive firm selling a single good in a domestic (certain) and a foreign (uncertain) market, and shows that these effects are asymmetric. The effects on total output and the inter-market allocation of output depend on the behavior of marginal domestic transport costs, but are largely independent of the form of the foreign transport cost function. Moreover, regardless of the latter, if marginal transport costs in the domestic market are constant, the firm's total output is independent of its attitude towards risk and the parameters of the risky market. This suggests that the firm's activity can be insulated from foreign uncertainties by government policies that focus on the shape of the domestic transportation cost function. Copyright 2003, Oxford University Press.

Suggested Citation

  • Ardeshir J. Dalal & Eliakim Katz, 2003. "The multi-market firm, transportation costs, and the separation of the output and allocation decisions," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 644-656, October.
    • Handle: RePEc:oup:oxecpp:v:55:y:2003:i:4:p:644-656
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    Cited by:

    1. Mausumi Kar, 2018. "Economic Integration And Trade Protection: Policy Issues For South Asian Countries," Contemporary Economic Policy, Western Economic Association International, vol. 36(1), pages 167-182, January.
    2. Inmaculada Rodríguez-Puerta & Alberto Álvarez-López, 2016. "Optimal allocation of a fixed production under price uncertainty," Annals of Operations Research, Springer, vol. 237(1), pages 121-142, February.
    3. Gaurav Bhattacharya, 2019. "Location decisions of industries in the presence of transportation costs and environmental regulations: empirical evidence from India," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 21(1), pages 24-53, June.
    4. Saibal Kar & Mausumi Kar, 2016. "Multi-Market Firms and Export Quota: Effects of Withdrawal of the Multi-Fiber Arrangement," India Studies in Business and Economics, in: Swapnendu Banerjee & Vivekananda Mukherjee & Sushil Kumar Haldar (ed.), Understanding Development, edition 1, chapter 7, pages 99-113, Springer.
    5. Inmaculada Rodríguez-Puerta & Alberto A. Álvarez-López, 2016. "Optimal allocation of a fixed production under price uncertainty," Annals of Operations Research, Springer, vol. 237(1), pages 121-142, February.

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