Economic geography and the distribution of profits

In modern economies, the amount of profits distributed to shareholders is far from being negligible. We show that the way they are distributed among agents matters for the space-economy. For example, the existence of mobile rentiers is sufficient to make the symmetric configuration unstable for all transport cost values and to allow for the partial agglomeration of firms. Obviously, to account for profits and for their distribution, the assumption of free entry must be abandoned. So doing, we ignore fixed costs and show that it is the combination of imperfect competition and firms' indivisibility that matters for the formation of agglomeration in economic geography. © 2004 Elsevier Inc. All rights reserved.