Product Variety and Firm Agglomeration
For the purpose of explaining interindustry variation in the geographic distribution of firms, we explore the impact of product heterogeneity on the incentives for firms to cluster in the presence of a ubiquitous "periphery" of stand-alone firms. Our analysis revolves around two counteracting forces. Greater product heterogeneity increases consumer search, which raises the amount of shopping at a cluster. Since this results in greater demand for a firm that joins the cluster, this effect increases the incentive to cluster. However, greater product heterogeneity gives stand-alone firms more local monopoly power. Since this raises their price-cost margins, this effect increases the incentive for a firm to stand alone. Our analysis shows that the former effect typically dominates, so that greater firm agglomeration is associated with industries characterized by greater product heterogeneity.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 27 (1996)
Issue (Month): 2 (Summer)
|Contact details of provider:|| Web page: http://www.rje.org |
|Order Information:||Web: https://editorialexpress.com/cgi-bin/rje_online.cgi|
When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:27:y:1996:i:summer:p:281-309. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.