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Gaining the competitive edge using internal and external spillovers: a dynamic analysis

  • Bischi, G. -I.
  • Dawid, H.
  • Kopel, M.

This paper studies the evolution of two clusters of firms competing on a common market. Firms exit and enter a cluster based on the perceived chances for profits inside and outside the cluster. Information about profits are diffused by direct communication between firms. Internal and external spillover effects reduce the overall costs of firms in the clusters depending on the number of firms in the own and the competing cluster. A discrete time deterministic dynamical system describing the evolution of cluster sizes is derived. An analysis of the long run attractors of the system and their basins of attraction is used to compare the effects of advantages of a cluster with respect to the size of internal and external spillover effects, respectively. Furthermore, the implications of slow and fast exit and entry behavior of firms for the long run survival and the size of the clusters are studied.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 27 (2003)
Issue (Month): 11-12 (September)
Pages: 2171-2193

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Handle: RePEc:eee:dyncon:v:27:y:2003:i:11-12:p:2171-2193
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Guy Dumais & Glenn Ellison & Edward L. Glaeser, 2002. "Geographic Concentration As A Dynamic Process," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 193-204, May.
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  5. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 612-43, August.
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  7. A. Banerjee & Drew Fudenberg, 2010. "Word-of-Mouth Communication and Social Learning," Levine's Working Paper Archive 425, David K. Levine.
  8. Danny Quah, 2000. "Internet Cluster Emergence," CEP Discussion Papers dp0441, Centre for Economic Performance, LSE.
  9. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Bischi, G. -I. & Dawid, H. & Kopel, M., 2003. "Spillover effects and the evolution of firm clusters," Journal of Economic Behavior & Organization, Elsevier, vol. 50(1), pages 47-75, January.
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