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Regular version of the site

Article

How market interactions shape the city structure

Regional Science and Urban Economics. 2018. Vol. 71. P. 122-136.
Malykhin N. I., Ushchev P.

We develop a spatial monopolistic competition model in which city structure formation is
entirely driven by market interactions. When preferences and transport costs are described by
real analytic functions, equilibrium land-use patterns are segregated. We completely solve the
case of quasilinear quadratic preferences and quadratic transport costs. The city is monocentric
when firms are few, duocentric when they are neither too few nor too many, and involves a
residential central area bordered by two commercial clusters when firms are many. In the
long-run equilibrium, the city size and its spatial structure may change swiftly in response to
tiny variations in the opportunity cost of land. Our model captures spatial price dispersion
without involving any search frictions.