Working Paper: CEPR ID: DP724
Authors: Suzanne Scotchmer; Jacques-Francois Thisse
Abstract: Incorporating space in economic models has two important consequences. First, the hypothesis of perfect competition becomes untenable, and second, the distinction between private and public goods becomes blurred. We review arguments that lead to these conclusions and summarize recent work pointing to other incentive systems that might lead to efficient location decisions and pricing policies.
Keywords: location; general equilibrium; local public goods; spatial competition
JEL Codes: 040; H41; L13; R1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Spatial competition (L13) | Imperfect competition (L13) |
| Geographical distribution of firms and consumers (F61) | Competitive dynamics (L13) |
| Transport costs (L91) | Pricing strategies (D49) |
| Transport costs (L91) | Market entry decisions (F23) |
| Firms' location choices (R30) | Market power (L11) |
| Market power (L11) | Prices exceed marginal costs (D40) |
| Spatial models (C31) | Quasi-public good scenario (H41) |
| Transport costs (L91) | Non-uniform distribution of benefits and costs (D39) |
| Too many firms in a market (L10) | Higher aggregate fixed costs (G31) |
| Higher aggregate fixed costs (G31) | Reduced benefits of transport costs (R41) |