On Modeling Transport Costs

  • Authors: José M. Usategui and Xavier Martínez-Giralt.
  • BSE Working Paper: 277 | September 15
  • Keywords: spatial competition , iceberg transport costs , monopoly
  • JEL codes: L12, D42
  • spatial competition
  • iceberg transport costs
  • monopoly
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Abstract

The interpretation of the loss of utility as transport costs in address models of differentiation poses a methodological difficulty. Transport costs implicitly amounts to assume that there is a good neither included in the differentiated sector nor in the composite (numeraire) good of the economy. We propose to use iceberg-type transport costs to solve this difficulty.

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