We address the fundamental question arising in geographical economics: why do economic activities agglomerate in a small number of places? The main reasons for the formation of economic clusters involving firms and/or households are analyzed: (i) externalities under perfect competition; (ii) increasing returns under monopolistic competition; and (iii) spatial competition under strategic interaction. We review what has been accomplished in these three domains and identify a few general principles governing the organization of economic space. A few alternative, new approaches are also proposed. J. Japan. Int. Econ., December 1996, 10 (4), pp. 339–378. Kyoto University and University of Pennsylvania; and CORE, Universite Catholique de Louvain and CERAS–ENPC (URA 2036, CNRS).

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Economics of agglomeration

This paper presents an analysis of the ready-to-eat breakfast cereal industry based on and related to the current antitrust case involving its leading producers. A spatial competition comparison framework is employed, with brands assumed relatively immobile. It is argued that the industry's conduct, in which price competition is avoided and rivalry focuses on new brand introductions, tends to deter entry and protect profits. Entry into a new segment of the market in the 1970s is discussed. Relevant welfare-theoretic issues are analyzed, and it is argued that the remedy proposed by the FTC is likely to improve performance.

Entry deterrence in the ready-to-eat breakfast cereal industry

Joel A. C. Baum and Stephen J. Mezias New York University This study examines the impact of localized competition on rates of failure in the Manhattan hotel industry from 1898 to 1990. The study investigates whether the organizations in a population with more similar resource requirements compete more intensely. This approach builds on existing density-based models of interorganizational competition by including variation at the organizational level directly in both the model and measures of competition. A dynamic analysis shows that hotels located in densely populated regions of the distributions of organizational size, geographic location, and price experienced significantly higher failure rates. The findings show how an ecological approach to competition that incorporates intrapopulation variation can provide a more detailed understanding of the competitive dynamics and evolution of organizational populations.'

https://www.jstor.org/stable/pdf/2393473.pdf

Localized Competition and Organizational Failure in the Manhattan Hotel Industry, 1898-1990

Demand for variety may arise from a taste for diversity in individual consumption and/or from diversity in tastes even when each consumer chooses a single variant. The full degree of variety potentially demanded will not, in general, be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants. The economics of product variety consists essentially in analysing the effect of this balance in different situations, and comparing the degree of product variety for different market structures with each other and with the optimum. The survey commences with the work on market structures with single product firms generalized monopolistic competition, tracing modern developments in both the Chamberlinian and Hotelling traditions. The latter has been particularly fruitful, due to the expansion of the original locational ideas into virtual spaces in product characteristics. The emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures, including strategic market preemption. Although most work has been in a full information context, there have been advances in product variety under imperfect information either by consumers to properties of the firms' products or firms as to consumers' demands.

The Economics of Product Variety: A Survey

This paper examines the role of consumer preferences, costs, and price competition in determining the competitive product strategy of a firm. In the model studied here, there are two identical firms competing on product quality and price. They face consumers who prefer a higher quality product to a lower quality product, but differ in how much they are willing to pay for quality. The consumers can also choose a substitute if they don't like the product-price offerings of the two firms. For the firms, a higher quality product costs more to produce than a lower quality product. The paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor, with the firm choosing the higher quality choosing the higher margin as well. This differentiation, however, is not efficient---that is, it is possible to choose two other products and offer them at prices that cover their marginal cost, and still satisfy consumers' “needs” better in the aggregate. A monopolist, by contrast, would differentiate his product line efficiently. This suggests that cannibalization has different effects on product strategy than competition. The paper also shows that if one firm enters the market first, then it can defend itself from later entrants, and gain a first-mover advantage, by preempting the most desirable product position.

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Product and Price Competition in a Duopoly

Focuses on a model of firm competition for the selling of homogenous product along a linear market. Assumptions on the competition model; Description of the one-dimensional market; Equilibrium of firms. (Из Ebsco)

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The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition

is not really a theory of spatial economic behaviour. Instead, it is a series of brilliant conjectures about the locational configurations that will result from such behaviour. The brilliance of these conjectures is illustrated by the successful applications of the theory to such diverse phenomena as the locational patterns of retailing activity in cities and of service centres in rural areas, the size distribution of cities and the diffusion of information and diseases.' In this paper, we outline an economic model of central places.2 Our theorising has two distinct purposes. First, we wish to begin the development of a theory of central places that is based on maximising behaviour of economic agents. Any theory of economic behaviour from which central places can be derived is necessarily both difficult and cumbersome. Non-convexities in the activities of buying and selling drive the model, and thus non-differentiabilities and discontinuities abound. As one seeks more generality in such circumstances, difficulties multiply rapidly. In order to begin the job, we have used assumptions that are specific and sometimes even crude. The second purpose of our theorising is to illustrate the limitations of current central place theory by providing counter examples to some propositions commonly accepted to follow from it. For this purpose we need not worry about lack of generality in any of our counter examples. Of course we are not solely concerned to refute accepted generalisations. By doing so, we hope to make alternative possibilities apparent. What we hope to attain, therefore, is a theoretical development inspired by the extremely fruitful conjectures of existing central place theory.

Richard G. Lipsey

Papers

The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition

An economic theory of central places

The block metric and the law of markets

Global imbalances and American trade policy

Will there be a Canadian‐American Free Trade Association?