Home Market Effect
Version 1.0.0 · Updated 2026-07-31
CORE DEFINITION
A theory proposed by Paul Krugman, which states that in the presence of economies of scale and transportation costs, firms tend to concentrate production in markets with larger demand and then export products to smaller markets. Larger markets attract more firms and become net exporters.
SCAFFOLDING EFFECT
Reduce cognitive load
Predicting industrial layout. It explains why large markets often become the production and export centers for certain products. In investment decisions, it helps firms understand the impact of market size on industrial agglomeration and choose the best production and sales base.
Anchor fast decisions
Also known as the 'home market effect': under economies of scale and trade costs, countries with larger demand attract more production of that industry and tend to be net exporters, causing the industry to agglomerate in larger markets.
MINIMUM ACTION
In progress 0/3Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Home_market_effectverified
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