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Transport Technologies and Location

We present a simple model of spatial competition to analyze the impact of a structural change in transaction (transportation) costs on the location of firms. The distinctive feature of the model is the existence of two markets which are non-connected. This means that a firm willing to sell in the other market must take into account a fixed fee in addition to the usual quadratic transport costs. Two different formulations for quadratic costs are explored, yielding different results for location analysis. In particular, the principle of maximum differentiation may not hold depending on the nature of transport costs.