A model of a spatial economy with trading posts

This paper develops a framework in which exchange takes place at pairwise markets in a monetary economy with locations. In the economy there are several towns, each of which has pairwise markets characterized by trading posts. At each trading post, taking prices as given, agents submit commodities simultaneously with no resale, as opposed to an instantaneous trading in the Walrasian economy. Commodities can be transported across towns with costs. In this setting, we demonstrate that a trading center emerges in equilibrium if, and only if, heterogeneity in transportation costs among towns is large enough.