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

Marco Alderighi () and Claudio Piga
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Marco Alderighi: University of Valle d'Aosta, Italy.

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: 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.

Keywords: Monopolistic competition; Transport costs; Endogenous fixed costs; Overlapping market areas (search for similar items in EconPapers)
JEL-codes: D21 D43 F12 L13 R12 (search for similar items in EconPapers)
Date: 2007-08, Revised 2007-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-geo, nep-ind, nep-mic and nep-ure
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Related works:
Journal Article: Why should a firm choose to limit the size of its market area? (2008)
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