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The role of cities: evidence from the placement of sales offices

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  • Thomas J. Holmes

Abstract

What is the force of attraction of cities? Leading explanations include the advantages of a concentrated market and knowledge spillovers. This paper develops a model of firm location decisions in which it is possible to distinguish the importance of the concentrated-market motive from other motives, including knowledge spillovers. A key aspect of the model is that it allows for the firm to choose multiple locations. The theory is applied to study the placement of manufacturing sales offices. The implications of the concentrated-market motive are found to be a salient feature of U.S. Census micro data. The structural parameters of the model are estimated. The concentrated-market motive is found to account for approximately half of the concentration of sales offices in large cities.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 298.

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Date of creation: 2002
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Handle: RePEc:fip:fedmsr:298

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Keywords: Cities and towns ; Economies of scale;

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References

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  1. Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
  2. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  3. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
  4. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
  5. Guy Dumais & Glenn Ellison & Edward Glaeser, 1997. "Geographic Concentration as a Dynamic Process," NBER Working Papers 6270, National Bureau of Economic Research, Inc.
  6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  7. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  8. Glaeser, Edward L., 1999. "Learning in Cities," Journal of Urban Economics, Elsevier, vol. 46(2), pages 254-277, September.
  9. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  10. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," NBER Working Papers 5706, National Bureau of Economic Research, Inc.
  11. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  12. Henderson, J. Vernon, 1986. "Efficiency of resource usage and city size," Journal of Urban Economics, Elsevier, vol. 19(1), pages 47-70, January.
  13. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  14. Robert E. Lucas, Jr., 2001. "Externalities and Cities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 245-274, April.
  15. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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Cited by:
  1. Berry, Steven & Waldfogel, Joel, 2005. "Product Quality and Market Size," Working Papers 1, Yale University, Department of Economics.
  2. Thomas J. Holmes, 2004. "Step-by-step Migrations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 52-68, January.
  3. No, Angela, 2008. "Cities and Growth: Knowledge Spillovers in the Adoption of Advanced Manufacturing Technologies," The Canadian Economy in Transition 2008018e, Statistics Canada, Economic Analysis.

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