Spatial duopoly and residential structure

Abstract

This paper studies a (one-dimensional) spatial duopoly model with an endogenous residential structure. Depending on the primitives of the model, we can observe one of the following urban configurations: (i) if the area under study is small enough, the two firms locate at the center and the residential pattern is that of a monocentric city; (ii) if the area is sufficiently large, the firms locate separately with a residential pattern of a bicentric city; (iii) if the area is very large, the two firms and residential patterns are completely separated, thus corresponding to two distinct monocentric cities. Although we consider the case in which two retail firms compete for consumers, the model can be reinterpreted, mutatis mutandis, as two manufacturing firms competing for workers.