Urban Structures with Forward and Backward Linkages

We study urban structures driven by demand and vertical linkages in the presence of increasing returns to scale. Individuals consume urban varieties and firms use these varieties to produce a national good. We prove the existence of a spatial equilibrium and obtain an invariance result according to which more intense demand or vertical linkages have the same effect on the urban structure as lower commuting costs. Various urban configurations can emerge exhibiting a monocentric, an integrated, a duocentric, or a partially integrated city structure. We discuss the role of commuting and transport costs, demand and vertical linkages, and urbanization in shaping these patterns. We show that multiple equilibria may arise involving the monocentric city and up to a couple of duocentric and partially integrated structures.