Geographic concentration and establishment size: analysis in an alternative economic geography model

Abstract

Big cities specialize in services rather than manufacturing. Big-city establishments in services are larger than the national average, whereas those in manufacturing are smaller. We propose an explanation of these and other related facts. The theory is developed in an economic geography model that is an alternative to the standard Dixit–Stiglitz structure. In our tractable structure, which has potentially wider application, firms have monopoly power in local markets but are price takers in export markets.