Abstract

A simple Weberian agglomeration is developed and then extended as an innovative fixed-charged, colocation model over a large set of locational possibilities. The model is applied to cases in which external economies (EE) arise due to colocation alone and also cases in which EE arise due to city size. Solutions to the model are interpreted in the context of contemporary equilibrium analysis, which allows Weberian agglomeration to be interpreted in a more general way than in previous analyses. Within that context, the Nash points and Pareto efficient points in the location patterns derived in the model are shown to rarely coincide. The applications consider agglomeration from two perspectives: one is the colocation behavior of producers as the agents of agglomeration and the other is the interaction between government and those agents in the interest of agglomeration policy. Extending the analysis to games, potential Pareto efficiency and Hicks optimality are considered with respect to side payments between producers and with respect to appropriate government incentives toward agglomeration.