Cities are the cradle of a wide range of cultural, social, and technological innovations that are at the heart of modern economic growth and development. Half of humanity today lives in cities but, until the last two decades, economists have paid much less attention to cities than have other social scientists. By contrast, geographers have long studied the role of cities in human affairs. Michael Batty, a distinguished scholar in the field of human geography, has recently written The New Science of Cities, a synthesis of his work and of some other prominent urban geographers. A review of his book is the first objective of this essay. The second is to discuss and compare the tools and concepts developed by urban economists with those of urban geographers in the hope of triggering a fruitful debate between those two groups of social scientists. (JEL R10, R23, R30, R40, R58)

We introduce into the standard spatial competition model the consumption of land by households, and study the spatial competition under the influence of a land market. In contrast to the standard assumption of a fixed, given distribution of households, we introduce the possibility of households' relocation in reaction to firms' location decisions. Thus, the spatial distribution of households is treated as endogenous, and a land market is introduced on which households compete for land-use. Households consume simultaneously land and firms' output. Accordingly, the demand of each household becomes in turn endogenous as it depends on the income left after the land rent is paid. Not surprisingly, the results obtained within this more general framework prove to be very different from the standard results. For example, in the 2- and 3-firm cases, the optimal configuration of firms is a Nash equilibrium when transport costs are high enough or the amount of vacant land is large enough. The existence property is restored in the 3-firm case when the transport costs are high enough. The introduction of vacant land causes a discontinuous change in the set of equilibrium configurations.

Using the Eaton and Lipsey mode, one shows that a hierarchical system of central places is socially optimal: firms having less frequent purchases are clustered with firms having more frequent purchases in any configuration minimizing total transport and production costs

Price discrimination emerges as the unique equilibrium outcome in games with either simultaneous choice of policy and price or sequential choice in which firms may commit first to uniform mill pricing before the actual market stage. Our results are used to analyze some common business practices that arise in geographical pricing, like the basing point system, and in the pricing of varieties or options from a base product in a product differentiation context.

We study imperfect competition in the labor market when both workers and firms are heterogeneous. When firms cannot observe workers' skill, firms pay workers equal wages, but workers absorb training costs. When firms can identify worker types, firms pay different net wages to different workers. Voters select the level of general education that is financed by a lump‐sum tax. Workers are on average better off when firms can observe workers' skill for a given level of general human capital, but the median voter prefers a higher level of general human capital when firms cannot observe worker types.

Spatial economics aims to explain why there are peaks and troughs in the spatial distribution of wealth and people, from the international and regional to the urban and local. The main task is to identify the microeconomic underpinnings of centripetal forces, which lead to the concentration of economic activities, and centrifugal forces, which bring about the dispersion of economic activities at the regional and urban levels. Transportation matters at both scales, but in a different way. The emphasis is on the interregional flows of goods and passenger trips at the regional level and on individual commuting at the urban level. ( JEL F12, L13, R12, R23, R30, R40)

We show that space matters in designing the optimal provision of local public goods (LPG's). Geography imposes a particular institutional structure of local governments due to the overlapping of market areas associated with different LPG's. The optimum can be decentralized through local governments that have jurisdiction over market areas of all LPG types. This implies that the appropriate suppliers of LPG's are metropolitan governments which finance them through user charges and land rent. In addition, our approach invalidates the prevailing theory of fiscal federalism, according to which a layer of government should be established for each type of LPG.

The strategic incentives, with respect to the choice of price policy in spatial competition, are analyzed in a duopoly model. Price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage. Nevertheless, profits may be h igher with uniform pricing. The authors' models are applied to analyz e some common business practices that arise in geographical pricing, like the basing point system, and in the pricing of varieties or opti ons from a base product in a product-differentiation context. Copyright 1988 by American Economic Association.

This paper examines strategic behavior of developers who, through offering different congested public‐good packages and revenue/fiscal schemes, compete for residents who are differentiated by income. There is an endogenous determination of numbers and sizes of communities. Developers have an incentive to strongly differentiate their public‐good offerings. In terms of pricing strategies, developers exhibit sharply contrasting behaviors. In low‐income communities, housing consumption is subsidized once lots are priced. In high‐income communities housing consumption is generally taxed.