Competition and Efficiency in a Spatial Setting

In this paper our primary concern is with a spatial model of competing firms in a regional industry. The firms are producing for an extraregional market and are located so as to gain exclusive access to a dispersed raw-material input. After outlining the form of the industry long-run average cost curve, we specify the equilibrium outcome, both for the individual firm and the regional industry. We demonstrate that the industry long-run supply curve does not coincide with the industry long-run average cost curve. We further show that the outcome in the spatial model results from the separation of firms, each firm having its own domain, part or all of which becomes its supply area.