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Regional Competition for Mobile Oligopolistic Firms: Does Public Provision of Local Inputs Lead to Agglomeration?
Author(s) -
Maurer Boris,
Walz Uwe
Publication year - 2000
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/0022-4146.00178
Subject(s) - economies of agglomeration , oligopoly , competition (biology) , diversification (marketing strategy) , business , order (exchange) , economic geography , industrial organization , economics , market economy , microeconomics , welfare , finance , ecology , biology , marketing
We develop a model in which two regional governments compete for two mobile oligopolistic firms. Regional governments provide local infrastructure to attract mobile firms in order to increase regional employment and income. Firms face the trade‐off between better regional infrastructure and fiercer competition for local workers. Strategic interaction prevails at the regional level as well as at the firm level. We show that an equilibrium with spatial concentration of firms as well as an equilibrium with spatial diversification of firms exists. In almost all cases regional competition leads to a suboptimal provision of local infrastructure.