Why Should a Firm Choose to Limit the Size of its Market Area?

We study when a monopolistically-competitive firm may optimally choose to limit the size of its market. This may be the case when the cost of serving the market with geographically dispersed customers is increasing in size. We also investigate the incentives faced by a firm to limit the reach of its market, when it adopts different pricing schemes. We show that under certain assumptions the derived equilibria are constrained socially optimal.

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Year of publication:	2007-08
Authors:	Alderighi, Marco ; Piga, Claudio A.
Institutions:	School of Business and Economics, Loughborough University
Subject:	Monopolistic competition \| Transport costs \| Endogenous fixed costs \| Overlapping market areas

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Series:	Discussion Paper Series.
Type of publication:	Book / Working Paper
Classification:	D21 - Firm Behavior ; D43 - Oligopoly and Other Forms of Market Imperfection ; F12 - Models of Trade with Imperfect Competition and Scale Economies ; L13 - Oligopoly and Other Imperfect Markets ; R12 - Size and Spatial Distributions of Regional Economic Activity
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005422980