Clustering or Co-Agglomeration? A Love-for-Variety Approach

29 Pages Posted: 4 Jun 2016

See all articles by Nikita Malykhin

Nikita Malykhin

National Research University Higher School of Economics

Philip Ushchev

HSE Moscow

Date Written: June 3, 2016

Abstract

We develop a simple partial-equilibrium model of endogenous city structure formation. No production externalities are at work, the only two forces shaping the spatial configurations of the city being love for variety (on the consumer side) and seeking for a better access to the market (on the firm side). We show that, unlike in existing models of a similar nature, our model generates clustering rather than co-agglomeration. Namely, if there are few firms relative to the urban population size, then firms tend to cluster at the city center, while consumers choose to reside on the outskirts. Otherwise, the opposite holds. Although a continuum of equilibrium city structures may emerge, we show that all spatial equilibria are segregated. In addition, the market outcome features spatial price dispersion, even though our framework does not involve imperfect information and search costs on the consumer side.

Keywords: urban structure, monopolistic competition, agglomeration, clustering, quadratic preferences, segregated spatial equilibrium, price dispersion

JEL Classification: R12, R14, D43, L13

Suggested Citation

Malykhin, Nikita and Ushchev, Philip, Clustering or Co-Agglomeration? A Love-for-Variety Approach (June 3, 2016). Higher School of Economics Research Paper No. WP BRP 140/EC/2016, Available at SSRN: https://ssrn.com/abstract=2789530 or http://dx.doi.org/10.2139/ssrn.2789530

Nikita Malykhin

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Philip Ushchev (Contact Author)

HSE Moscow ( email )

26 Shabolovka
Moscow
Russia

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