Collusion, agglomeration, and heterogeneity of Firms


Friedman and Thisse (RAND Journal of Economics, 1993) show that spatial agglomeration appears in a standard two-stage location price model if the symmetric firms can collude in prices. We introduce a cost difference between two firms. We show that agglomeration never appears in a collusive equilibrium even when the cost difference between the firms is sufficiently small.

JEL classification numbers: L13, R32, L41
Key words: cost asymmetry, spatial agglomeration, collusion

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