DP3385 Economic Geography and the Role of Profits

Author(s): Pierre M Picard, Jacques-François Thisse, Eric Toulemonde
Publication Date: May 2002
Keyword(s): economic geography, imperfect competition, product differentiation
JEL(s): L13, R13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3385

In modern economies, the amount of profits distributed to shareholders is far from being negligible. We show that the way profits are distributed among agents matters for the space-economy. For example, the existence of mobile rentiers is sufficient to make the symmetric configuration unstable for all transport cost values and to make partial agglomeration of firms stable. Obviously, to account for profits and for their distribution, the assumption of free entry must be abandoned. So doing, we ignore fixed costs and show that it is imperfect competition more than increasing returns that matters for the formation of agglomeration in economic geography.