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How do trade and communication costs shape the spatial organization of firms?

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  • Gokan, Toshitaka
  • Kichko, Sergey
  • Thisse, Jacques-François

Abstract

We consider an economic geography setting in which firms are free to choose one of the following organizational types: (i) integrated firms, which perform all their activities at the same location, (ii) horizontal firms, which operate several plants producing the same good at different locations, and (iii) vertical firms, which perform distinct activities at separated locations. We show that there exists a unique organizational equilibrium, which typically involves the coexistence of various organizational forms. We also give necessary and sufficient conditions for the three types of firms to coexist within the same region and show that transportation and communication costs have opposite effects on firms’ organizational choices. This suggests that, depending on its nature, the supply of a new transportation infrastructure may lead to contrasted locational patterns.
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  • Gokan, Toshitaka & Kichko, Sergey & Thisse, Jacques-François, 2020. "How do trade and communication costs shape the spatial organization of firms?," LIDAM Reprints CORE 3109, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:3109
    Note: In : Journal of Urban Economics, Vol. 113, no.103191 (2019)
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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