THE EFFECTS OF ZONING IN SPATIAL COMPETITION

Abstract

This paper considers a location model to illustrate the effect of zoning on competition. A planner is in charge of designing a city in a circular space where firms and consumers are located on different sides.With this type of market configuration, equilibrium in location under concave transport costs is proved. Then, a welfare function with different weights attached to consumer and firm surpluses is introduced to highlight zoning regulation as an influential competition policy tool. Depending on the regulator’s political profiles and the demand, it is shown that zoning can lead to strong, weak, or moderate competition.