circle_city_WP_Lboro.pdf (1003.85 kB)
Download file

The circular city with heterogeneous firms

Download (1003.85 kB)
preprint
posted on 20.02.2009, 14:34 by Marco Alderighi, Claudio Piga
The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.

History

School

  • Business and Economics

Department

  • Economics

Publisher

© Loughborough University

Version

VoR (Version of Record)

Publication date

2008

Notes

This is a working paper. It is also available at: http://ideas.repec.org/p/lbo/lbowps/2008_03.html

ISSN

1750-4171

Book series

Loughborough University. Department of Economics. Discussion Paper Series;WP 2008 - 03

Language

en