IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa06p900.html
   My bibliography  Save this paper

Why Should a Firm Choose to Limit the Size of Its Market Area?

Author

Listed:
  • Marco Alderighi

Abstract

We analyze a variant of the standard Dixit-Stiglitz (AER, 1977) model, adding transport costs and assuming that, in addition to price, a firm can choose the size of the market area and the quality of the product. We also modify the standard cost function, making variable costs and fixed costs increasing in both "reach" and quality. We characterize the solution of the model and we find the conditions under which a firm decides to limit the market area. Finally, we show that the firm's behavior is constrained socially optimal.

Suggested Citation

  • Marco Alderighi, 2006. "Why Should a Firm Choose to Limit the Size of Its Market Area?," ERSA conference papers ersa06p900, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa06p900
    as

    Download full text from publisher

    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa06/papers/900.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(1), pages 63-81.
    2. Philip McCann, 1998. "The Economics of Industrial Location," Advances in Spatial Science, Springer, number 978-3-662-03702-7.
    3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    4. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9781107001411, September.
    5. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
    6. Anderson, Simon P. & de Palma, Andre, 2000. "From local to global competition," European Economic Review, Elsevier, vol. 44(3), pages 423-448, March.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. Gianmarco I. P. Ottaviano & Diego Puga, 1998. "Agglomeration in the Global Economy: A Survey of the ‘New Economic Geography’," The World Economy, Wiley Blackwell, vol. 21(6), pages 707-731, August.
    9. Oliver D. Hart, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 529-546.
    10. James F. Campbell, 1993. "One-to-Many Distribution with Transshipments: An Analytic Model," Transportation Science, INFORMS, vol. 27(4), pages 330-340, November.
    11. Frank A. Fetter, 1924. "The Economic Law of Market Areas," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 38(3), pages 520-529.
    12. Brooks, Eileen, 2003. "Why Don’t Firms Export More? Product Quality and Colombian Plants," Santa Cruz Center for International Economics, Working Paper Series qt8hc9m1wg, Center for International Economics, UC Santa Cruz.
    13. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    14. Hsu, Song-ken, 1979. "Monopoly Output under Alternative Spatial Pricing Techniques: Comment," American Economic Review, American Economic Association, vol. 69(4), pages 678-679, September.
    15. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    16. Brooks, Eileen, 2003. "Why Don’t Firms Export More? Product Quality and Colombian Plants," Santa Cruz Department of Economics, Working Paper Series qt8hc9m1wg, Department of Economics, UC Santa Cruz.
    17. Usree Bandyopadhyay, 1999. "Trade and the Distribution Sector: Some Evidence for OECD Countries," Canadian Journal of Economics, Canadian Economics Association, vol. 32(5), pages 1299-1312, November.
    18. Brooks, Eileen, 2003. "Why Don’t Firms Export More? Product Quality and Colombian Plants," Santa Cruz Department of Economics, Working Paper Series qt0t95h27d, Department of Economics, UC Santa Cruz.
    19. C. D. Hyson & W. P. Hyson, 1950. "The Economic Law of Market Areas," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 64(2), pages 319-327.
    20. Laffont, Jean-Jacques & Tirole, Jean, 1990. "Optimal Bypass and Cream Skimming," American Economic Review, American Economic Association, vol. 80(5), pages 1042-1061, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alderighi, Marco & Piga, Claudio A., 2008. "Why should a firm choose to limit the size of its market area?," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 191-201, March.
    2. Marco Alderighi, 2003. "Niche Markets and Electronic Commerce," KITeS Working Papers 147, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2003.
    3. Helena Marques, 2008. "Trade And Factor Flows In A Diverse Eu: What Lessons For The Eastern Enlargement(S)?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 364-408, April.
    4. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    5. repec:lic:licosd:18707 is not listed on IDEAS
    6. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
    7. Henry Overman & Stephen Redding & Anthony J. Venables, 2001. "The Economic Geography of Trade, Production, and Income: A Survey of Empirics," CEP Discussion Papers dp0508, Centre for Economic Performance, LSE.
    8. International Monetary Fund, 2006. "Republic of Slovenia: Selected Issues," IMF Staff Country Reports 2006/250, International Monetary Fund.
    9. Takatoshi Tabuchi & Kristian Behrens & Andrea R. Lamorgese, 2004. "Testing the Home Market Effects in a Multi-country World: The Theory," Econometric Society 2004 Far Eastern Meetings 595, Econometric Society.
    10. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment," Harvard Institute of Economic Research Working Papers 1850, Harvard - Institute of Economic Research.
    11. Juan Carlos Hallak, 2004. "Product Quality, Linder, and the Direction of Trade," NBER Working Papers 10877, National Bureau of Economic Research, Inc.
    12. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September.
    13. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    14. Alessandro Olper & Valentina Raimondi, 2008. "Explaining National Border Effects in the QUAD Food Trade," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(3), pages 436-462, September.
    15. Alessandro Olper & Valentina Raimondi, 2008. "Market Access Asymmetry in Food Trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(3), pages 509-537, October.
    16. Ehrenfeld, Wilfried, 2004. "Die Neue Ökonomische Geographie [The New Economic Geography]," MPRA Paper 12232, University Library of Munich, Germany.
    17. Russell Hillberry & David Hummels, 2002. "Explaining Home Bias in Consumption: The Role of Intermediate Input Trade," NBER Working Papers 9020, National Bureau of Economic Research, Inc.
    18. Michele Fratianni & Francesco Marchionne, 2011. "The Limits to Integration," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume I, chapter 9, Edward Elgar Publishing.
    19. Greenaway, David & Torstensson, Johan, 2000. "Economic Geography, Comparative Advantage and Trade within Industries: Evidence from the OECD," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 260-280.
    20. Kristian Behrens & Cem Ertur & Wilfried Koch, 2012. "‘Dual’ Gravity: Using Spatial Econometrics To Control For Multilateral Resistance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 773-794, August.
    21. Carl Gaigné & Jacques-François Thisse, 2013. "New Economic Geography and the City," Working Papers SMART 13-02, INRAE UMR SMART.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa06p900. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gunther Maier (email available below). General contact details of provider: http://www.ersa.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.