Abstract
ABSTRACT. This paper develops a model of firm location choice based on managerial theory of discretionary behavior. Specifically, it is assumed that the management of the firm maximizes a utility function which incorporates profits and location‐specific amenities. As the firm moves from one prospective location to another, it faces a profit‐amenity constraint imposed by market conditions. The optimal location decision is derived by maximizing the utility function subject to this market‐imposed constraint. After examining the properties of the optimal solution, the impact of various changes in product market structure (including changes from a contestible markets perspective) on the location decision is investigated. A major finding is that the impact of a change in market structure depends upon the nature of the structure change and upon the substitution and income effects induced by the structural change.
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