Abstract
In a two-region model where regional incomes are endogenous and where firms compete a la Cournot, we first show that strategic interactions may induce firms to agglomerate in the initially developed region, if transportation costs are low or economies of scale high: in the region where more firms are established, price and individual market shares effects (intra-regional competition) are counterbalanced by higher global market shares and reduction in imports (inter-regional competition). It is then shown that a regional advantage in costs, productivity or size attracts the location of new firms in this region.
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