circle_city_WP_Lboro.pdf (1003.85 kB)
The circular city with heterogeneous firms
preprint
posted on 2009-02-20, 14:34 authored by Marco Alderighi, Claudio PigaThe 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 UniversityVersion
- VoR (Version of Record)
Publication date
2008Notes
This is a working paper. It is also available at: http://ideas.repec.org/p/lbo/lbowps/2008_03.htmlISSN
1750-4171Book series
Loughborough University. Department of Economics. Discussion Paper Series;WP 2008 - 03Language
- en