Agglomeration incentives in a spatial Cournot model with increasing returns to scale

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Abstract

This paper uses a spatial Cournot competition model to examine the effect of increasing returns to scale (IRS) in manufacturing as an agglomerating force between a fixed number of firms competing over regional markets. As one would expect, with a constant returns to scale (CRS) manufacturing sector the dispersed symmetric equilibrium will always be stable. The first important result is the confirmation that even low levels of IRS provide incentives for the manufacturing firms to deviate from this symmetric equilibrium and move towards agglomeration. An interesting aspect of the results, however, is that IRS do not automatically imply an unstable symmetric equilibrium, and the threshold required to provoke instability increases with transport costs.

Keywords

Agglomeration Increasing returns to scale Imperfect competition 

JEL Classification

R10 R12 F12 

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Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.OFCE–DRICValbonneFrance

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