Green zoning regulation under price discrimination

Abstract

This study aims to examine urban zoning within a linear city in a Bertrand duopolistic competition framework with price discrimination and linear transportation costs. It analyses the effects of introducing an environmental area where economic and residential activity are not allowed. The welfare function used to determine the optimal size of the green area allows for a possible regulator’s bias in favour of firms/consumers. It is shown that location-price competition can be either reduced or increased depending on the size of the green area. The results indicate when a regulator implements green zoning, under linear transportation costs, influences the optimal location of firms (because these locations depend on the size of the green zone). In consequence, zoning may be used as an effective industrial or urban policy tool.