Agglomeration as spatial interdependence between firms and households

The purpose of this paper is to provide a rational for the agglomeration of firms and households over a linear space. A state of comprehensive spatial interdependence is obtained by assuming that every household patronizes several firms. Within this context, supply follows the theory of spatial competition generalized to allow for an endogenous demand structure; and demand follows the tradition of urban economics generalized to allow for an endogenous supply structure. Agglomeration emerges through the interplay between spatial boundaries, trip dispersion, and the existence of positve profits.     

Competing for capital when labor is heterogeneous

This paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers. The small country attracts less firms than the large one but accommodates a share of the industry that exceeds its capital share—a reverse home market effect. This allows the small country to be more aggressive and to set a higher tax rate than the large one, thus implying that tax competition reduces international inequalities. However, the large country always attains a higher utility than does the small country. Our model thus encapsulates both the “importance of being small” and the “importance of being large”. Last, tax harmonization benefits to the small country but is detrimental to the large one.     

Price competition, quality and income disparities

A market is considered, the demand side of which consists of a large number of consumers with identical tastes but different income levels, and the supply side, of two firms selling at no cost products which are relatively close substitutes for each other. Consumers are assumed to make indivisible and mutually exclusive purchases. A full characterization of the demand structure and the non cooperative market solution is given, and the dependence of the latter on income distribution and quality parameters is analyzed.     

Commodity tax harmonization and the location of industry

We study the positive implications of commodity taxation and tax harmonization under the destination and origin principles when firms are monopolistic competitors facing variable demand elasticity and segmented markets. Our emphasis is on the international location of firms in the presence of market size asymmetries and trade costs. Under the destination principle, an increase in the tax rate of a country always causes some firms to relocate to the other. This effect may be reversed under the origin principle when economic integration is deep enough. Under tax harmonization the choice of a common tax principle is irrelevant for the market outcomes and for the global tax revenues. It affects, however, the distribution of revenues between small and large countries.     

Economics of Agglomeration

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, Université Catholique de Louvain and CERAS–ENPC (URA 2036, CNRS).     

On existence and stability of spatial equilibria and steady-states

This note discusses the existence and stability of two equilibrium concepts for a spatial economy in which the utility of an agent depends on the overall distribution of agents over space.     

Fiscal competition and regional differentiation

Regions can benefit by offering infrastructure services that are differentiated. Competition between regions over potential investors is then less direct, allowing them to realize greater benefits from external investors. The two polar cases of full and incomplete information about investors' needs are studied. In both cases, there is regional differentiation. However, fiscal competition is efficient in the former case but not in the latter. Finally, it is shown that free entry in the location market calls for some regulation because of the excessive number of competing regions that would prevail in equilibrium.     

A Strategic Approach to Software Protection*

This paper demonstrates that there is a strategic reason why software firms have followed consumers' desire to drop software protection. We analyze software protection policies in a price-setting duopoly software industry selling differentiated software packages, where consumers' preference for particular software is affected by the number of other consumers who (legally or illegally) use the same software. Increasing network effects make software more attractive to consumers, thereby enabling firms to raise prices. However, it also generates a competitive effect resulting from feircer competition for market shares. We show that when network effects are strong, unprotecting is an equilibrium for a noncooperative industry.