SPATIAL ENTRY DETERRENCE UNDER OLIGOPOLY*

ABSTRACT. This paper examines colluding, oligopolistic firms in a linear market. By assuming that rivals do not compete for consumers at their market boundaries, it is shown that an equilibrium exists without adopting a convex transportation cost function. Two price profiles are derived. The first describes firm prices in the absence of threatened entry. The second details profit-maximizing prices which forestall entrants. Given infinite relocation costs, threatened entry leads to price adjustments by the incumbent firms.     

THE SCOPE FOR PURE PROFITS IN A STANDARD LOCATION MODEL*

ABSTRACT. This paper examines the possibility of sustaining a collusive equilibrium in a standard location model. Drawing on recent developments in game theory, it is suggested that collusion is only feasible if market areas lie within a certain range. When market areas are large the threat of entry is likely to undermine any collusive agreement. In contrast when market areas are small, defection from the cartel is shown to be profitable. Thus collusion is shown to be feasible only when market areas and demand lie within certain bounds. More generally, this result appears to be consistent with the somewhat ambiguous empirical evidence which suggests that competitive pricing behavior is likely to prevail in periods of excessively high demand and during recessions.     

Externalities of Nuclear Power Plants: Further Evidence

Several prior studies found no detrimental external effects of nuclear power plants when estimating the distance gradient for housing prices within a hedonic model. Other papers found significant negative effects of nuclear power when studying real asset prices in cross sections of broad market areas.We suggest a resolution and verify that an installation effect occurs after controlling for the tendency of facility builders to seek out cheap land. The study assembles a panel of all commercial market areas, including indicators for nuclear facilities, in the contiguous United States observed 11 times over roughly equal intervals covering the span from 1945 to 1992.     

Farm size and work ethic: measuring the success of immigrant farmers on the American grasslands, 1875–1925

With the general increase in the scale of American farming over the last 100 years, farm size has sometimes been used as a measure of financial success. This measure requires considerable modification, particularly when the intensity of farming is introduced. The average size of farms also varied according to government land granting policy, stage of settlement, accessibility to markets, fluctuations in market prices for farm produce and variations in climate which affected harvest yields. In this essay the validity of farm size as a measure of success is considered and then applied to three immigrant groups in central Kansas to determine the importance of the work ethic in their value systems. The Mennonites, not unexpectedly, appear to have been the most successful farmers, but the French-Canadians, contrary to general wisdom, achieved a higher level of success than Swedish immigrant farmers.     

A HEDONIC MODEL OF INTERREGIONAL WAGES,RENTS, AND AMENITY VALUES*

ABSTRACT This paper develops a general multimarket hedonic model appropriate for a national, interregional study of wages, housing prices, and location-specific amenities. The model encompasses the effects of interregional location, intraurban location, and city size. Typically, hedonic studies focus on a single market such as labor or housing and ignore interactions implicit in a more global compensation mechanism. Examination of the comparative statics of our model indicates that single-market differentials are partial prices and are unreliable measures of amenity values in an interregional context. Unbiased amenity values are estimated for a comprehensive set of amenities using data on housing prices for 34,414 households and wages for 46,004 workers from the 1980 Census of Population and Housing. Statistically significant differences in housing prices and wages are found due to amenities.     

SEARCH FRICTIONS,UNEMPLOYMENT, AND HOUSING IN CITIES: THEORY AND POLICIES

We propose an urban search‐matching model with land development. Wages, unemployment, prices of housing and land are endogenously determined. We characterize the steady‐state equilibrium and then discuss the issue of efficiency. To explore interactions among markets, we implement comparative static analysis. We also consider three policies: an entry‐cost policy that reduces firms' entry, a transportation policy that reduces commuting costs, and a housing policy that decreases rental prices. We find that the transportation and housing policies are more efficient if the unemployment rate is low, while the entry‐cost policy is more efficient if the unemployment rate is high.     

The Evolution of Administrative Systems in Kuwait,Saudi Arabia,and Qatar: The Challenge of Implementing Market Based Reforms

The dramatic plunge in oil prices since the second half of 2014 poses serious challenges for the oil dependent states of Kuwait, Saudi Arabia, and Qatar, and revives their interest in accelerating the implementation of market‐based reforms such as outsourcing, privatization, and public–private partnerships. This article challenges the assumption that these reforms offer a panacea for administrative change, and argues that while they might appear to be a solution to the growing fiscal constraints in the three Gulf states, considerable administrative, cultural, economic, and political barriers hinder their effective implementation. The conclusion reached is that western labels of market‐based reforms offer limited options for the three states in the absence of strong political will to make fundamental reforms that could alter the state–society relations. It is suggested that further theorization of administrative change is required in cultural contexts, such as the Gulf region, where administration and society are intertwined, and where trying to minimize the role and size of the state, poses a direct threat to the political legitimacy of the ruling elites.     

GENERAL EQUILIBRIUM OF SPATIAL PRODUCT AND LABOR MARKETS*

ABSTRACT A simple general equilibrium model relates spatial product markets and spatial labor markets. The firm is treated as being a spatial monopolist or as a Löschian competitor in the output market and as a spatial monopsonist in the labor market. Derived free spatial demand and free regional labor supply are defined, and their properties examined. The model provides the framework for analyzing the impact of a technological improvement in labor productivity on the structure of the spatial markets. The impact of entry on spatial labor supply is an important determinant of whether or not entry lowers wages and raises output prices. Unlike the spaceless competitive paradigm, zero-profit long-run equilibrium can occur in a space economy under conditions of increasing returns to scale.     

Facility Location Under Zone Pricing

Zone pricing consists in determining simultaneously several delivered prices together with the zones where these prices apply. A model and algorithm are proposed to determine optimal facility locations, prices, tariff-zones, and market areas in order to maximize the firm's profit under zone pricing. The resulting nonlinear mixed-integer program is tackled by projecting the objective function on the price space, solving repeatedly uncapacitated facility location problems for fixed values of the prices. The implicit profit function so defined is optimized by branch-and-bound. Computational results are reported.     

ON THE SHAPE OF MARKET AREAS IN LÖSCHIAN SPATIAL MODELS*

ABSTRACT. The paper analyzes the lattice shape of equilibrium configurations of firms in spatial models. Lösch's assertion that free entry will result in hexagonal market areas is proved for a variety of assumptions about the nature of the market equilibrium, and about the preferences of customers. All the models considered, however, incorporate rational entry behavior and identify the stable lattice as an entry deterring equilibrium. A simple proof is presented of the optimality of hexagonal market areas, at least among regular space-filling configurations.     

The relationships among labor-force participation,service-sector employment,and underemployment

"In this study, it is argued [that] underemployment is both affected by and affects the labor-force participation rate (LFPR) and the level of service employment. Interestingly, the analysis reveals that service employment lowers the LFPR and raises underemployment. In turn, underemployment increases the LFPR as more secondary workers are pushed into the labor market in an effort to support their households. Thus, secondary workers are not pulled into the labor market by the availability of service jobs, but are rather pushed into these jobs by the condition of underemployment that is brought on by the growing concentration of low-paying service jobs....A three-equation simultaneous equation model is developed to test our hypotheses [and] three-stage least squares...estimates of this model for the 100 largest [U.S.] metropolitan areas are presented...."     

SPATIAL COMPETITION,PRICING, AND MARKET POWER IN TRANSPORTATION: A DOMINANT FIRM MODEL*

ABSTRACT Transport firms compete over space. We develop a dominant firm model of transport services wherein one firm (the railroad) has market power, but competes in space with a competitive alternative (truck‐barge). When constrained, the dominant firm prices to “beat the competition”, which impedes efficiency when demand has some elasticity. We extend the basic model in a number of directions that include the relationship between monopoly prices and the generalized concavity of the shipper demand functions, the effects of multiple terminal markets, the role of joint production (fronthaul–backhaul markets), and the effects of capacity constraints.     

Modeling Residential and Business Telecommunication Flows: A Regional Point-to-Point Approach

Regional telecommunication flows, measured in terms of numbers of messages and conversation minutes, are analyzed with a systematic random sample of toll calls characterized by their timing, duration, cost, and origin-destination (O-D) locations. Point-to-point models are econometrically estimated, with such independent variables as destination market size, O-D distance, and average and time-of-day (TOD) prices, for the residential and business sectors separately. The results indicate that (1) the demands for calls and conversation minutes are price-inelastic and slightly elastic, respectively, (2) business demand is relatively more price-elastic than residential demand, (3) distance is a strong determinant of telephone demand, and (4) most TOD demand substitutions resulting from TOD price changes would take place between the daily and evening rate periods. Several areas for further research are outlined.     

IMPERFECT INFORMATION,UNCERTAINTY AND OPTIMAL SAMPLING IN LOCATION THEORY: AN INITIAL REEXAMINATION OF HOTELLING,WEBER, AND VON THÜNEN*

ABSTRACT Sophisticated locational analysis should no longer proceed without examining (1) the feasibility of reducing uncertainty about the size and spatial spread of the market, prices and other elements and (2) the practicality of information generation through sampling. The present paper points out the methodology for Hotelling-, Weberian- and von Thünen- type location problems by examining simplified situations.     

Dimensions and dynamics of residential segregation by income in urban Canada, 1991–1996

This paper examines the trends in residential segregation by income (post-transfer, pretax income) in the thirty-nine largest Canadian urban areas between 1991 and 1996. The study is motivated by the relative lack of attention paid to residential segregation by income in the Canadian context and by conceptual arguments linking compromised life chances and increased social tensions for the populations of highly segregated cities. We investigated several dimensions of segregation using five different measures (we focus on three of these here given the correlation structure of the measures) to examine changes in segregation between 1991 and 1996, a period characterised by economic recession, cutbacks in social programs and a widening of inequality in market incomes at the national scale. Overall, income segregation increased in most urban areas across all dimensions of segregation during the time period, with particularly high degrees of segregation observed in prairie cities (Winnipeg, Saskatoon and Regina). Of the three largest metropolitan areas (Vancouver, Toronto and Montréal), Montréal was the most consistently segregated. We also find that increases in spatial separation and spatial concentration by income occurred despite the fact that at the national scale, the tax and transfer system appeared to be adequately redressing a rise in inequality in labour and market incomes (as demonstrated by the lack of change in post-transfer national income inequality measures during a period when inequality in market and labour incomes rose sharply). This implies that the lived experience of changes in income distribution are unlikely fully captured by aspatial, national-scale measures and that intra-urban measures with a spatial dimension are an important indicators of inequality in Canadian society.     

Land Absorption in U.S. Metropolitan Areas: Estimates and Projections from Regional Adjustment Models

This article adapts a regional adjustment model to estimate and project the spatial outcome of population and employment growth in U.S. metropolitan areas. The three-equation multiplicative model of population change, employment change, and land absorption is estimated using three-stage least squares to account for endogeneity among the dependent variables and contemporaneous correlation across the system of equations. In addition to the core model, alternative specifications are estimated, imposing the initial conditions of size, land availability, and economic structure. The stability of the solutions is then examined using reduced-form equations estimated via the seemingly unrelated regression equations approach. The results reveal substantive evidence that population and employment growth are jointly determined, of how the two affect the outcome of land development, and, perhaps most importantly, stable and fractionally reasonable estimates at projected equilibrium points. Lastly, the adapted model controlling for the initial condition of land availability is used to project patterns of land consumption at equilibrium in 50 rapid-growth metropolitan areas.     

Hedonic pricing analysis of the influence of urban green spaces onto residential prices: the case of Leipzig,Germany

In the light of global urbanization and biodiversity loss, ecosystem services provided by urban green spaces (UGS) are becoming increasingly important, not least as a recovery and recreation opportunity for citizens. The valuation of UGS is significant for urban planners, who make decisions on the creation or removal of UGS. We analysed the influence of UGS on residential property prices in Leipzig, Germany, by applying a hedonic pricing analysis. This analysis complements the existing literature by considering both sale and rental prices for flats and houses; moreover, the shape of UGS is taken into account explicitly; finally, it is the first study in Germany to analyse UGS in hedonic studies to such an extent. The results demonstrate that the size of the nearest UGS has a stronger impact on prices compared to the distance from it. With respect to shape, we found that the simpler the UGS shape, the higher the prices. Although we find an impact of UGS on prices, the impact is smaller than that of other characteristics. The proposed valuation approach and obtained results inform urban planners regarding the design of new UGS and raise awareness about potential intended and unintended economic and social effects.     

Mapping Market Areas Using Nonparametric Smoothing

A new method is proposed to map firms' principal market areas using shipment data. The new method is a general one which could prove just as useful in mapping the incidence of disease as in mapping market areas. This method is applied to agricultural data for feeder cattle sales at a video cattle auction. Transportation costs appear to be the main determinant of market area boundaries, but there are many cases where transportation costs alone cannot explain the market areas found. The size and shape of market areas for feeder cattle buyers are large, irregularly shaped, and extensively overlapping.     

Employment Densities, Spatial Autocorrelation, and Subcenters in Large Metropolitan Areas

Employment density functions are estimated for 62 large metropolitan areas. Estimated gradients are statistically significant for distance from the nearest subcenter as well as for distance from the traditional central business district. Lagrange Multiplier (LM) tests imply significant spatial autocorrelation under highly restrictive ordinary least squares (OLS) specifications. The LM test statistics fall dramatically when the models are estimated using flexible parametric and nonparametric methods. The results serve as a warning that functional form misspecification causes spatial autocorrelation.     

VALUING AMENITIES AND DISAMENITIES OF URBAN SCALE: CAN BIGGER BE BETTER?*

ABSTRACT. Considerable effort has been devoted within the recent literature to the valuation of urban amenities and disamenities, as well as to econometric procedures required for the estimation of their implicit market “prices.” This study questions the equilibrium conditions invoked within this literature to derive estimates of marginal willingness to pay, conditions premised upon “perfect” labor mobility among cities. It is shown that such assumptions need not be invoked if one considers the amenity price-mobility relationship directly. This is accomplished by appending a binary migration model to a first-stage wage equation, a procrdure that provides estimates of willingness to pay that can diverge from market-determined implicit prices. Comparison of such values yields important information on the adequacy of market compensation for disamenities (amenities) throughout metropolitan areas.