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District formation: a co-opetition approach

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  • SOUBEYRAN, Antoine
  • WEBER, Shlomo

Abstract

This paper considers a model of district formation that incorporates a notion of regional industrial systems. Each firm chooses its location from the set of existing industrial districts. The heterogeneous firms are distinguished by its "stand alone" district-dependent production and transportation cost. However, if other firms locate in the same district, the firm's stand alone cost is reduced by a factor that depends on the number of firms in the district. Thus, firms must take into account the reciprocal nature of cost-reduction as by joining a district, they engage in tacit cooperation: the firms reduce their own costs but in the same time reduce the costs of their rivals. We show that under quite general assumptions this co-opetition game that contains the elements of competition and cooperation, yields a subgame perfect equilibrium for any number of firms and districts. We characterize both "agglomeration" equilibria, where all firms locate in the same district, and "dispersed" equilibria, where firms locate in different districts. We show that a dispersed equilibrium can emerge only if firms' and districts' characteristics possess a sufficient degree of heterogeneity.

Suggested Citation

  • SOUBEYRAN, Antoine & WEBER, Shlomo, 2001. "District formation: a co-opetition approach," LIDAM Discussion Papers CORE 2001016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2001016
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    References listed on IDEAS

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    More about this item

    Keywords

    industrial districts; cost reduction factor; agglomeration and dispersed equilibria;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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