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Urban Functional Specialisation and the Interplay between Firm’s Communication Costs

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  • G. F. Gori

Abstract

This paper focuses on the functional specialisation of a system of cities, with particular attention to the role and the formation process of secondary business centers. At the european level, the latters can be identified in the large number of regional capitals, and properly defined as cities hosting both headquarters of multi-location firms and providers of standard non-tradable business services (SBS). I present a theoretical model in which the changes in urban system’s degree of functional specialisation are linked to (i) firms’ organisational choices, since firms decide whether splitting into headquarter and production plant or remaining integrated in a single establishment and to (ii) firms’ location decision with regards to the proximity with the tradable advanced business services providers. I model two types of communication costs, one between headquarters and advanced tradable business services providers (ABS) and one between headquarters and production plants. The interplay between the two types of communication costs is shown to have effects on the transition process from an “integrated” urban system where each city hosts every different functions to a “functionally specialised” urban system where each city is either a primary business center (hosting ABS), a secondary business centers (SBS) or a pure manufacturing city and all this city-types coexist in equilibrium. In particular, I find that maximum functional specialisation of the urban system turns out to be feasible only if firms face a very high share of the total costs represented by their heaquarter spending.

Suggested Citation

  • G. F. Gori, 2013. "Urban Functional Specialisation and the Interplay between Firm’s Communication Costs," Working Papers wp877, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:wp877
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    References listed on IDEAS

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    1. Cavailhes, Jean & Gaigne, Carl & Tabuchi, Takatoshi & Thisse, Jacques-Francois, 2007. "Trade and the structure of cities," Journal of Urban Economics, Elsevier, vol. 62(3), pages 383-404, November.
    2. Ono, Yukako, 2007. "Market thickness and outsourcing services," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 220-238, March.
    3. Henderson, Vernon & Becker, Randy, 2000. "Political Economy of City Sizes and Formation," Journal of Urban Economics, Elsevier, vol. 48(3), pages 453-484, November.
    4. Kristin Aarland & James C. Davis & J. Vernon Henderson & Yukako Ono, 2007. "Spatial organization of firms: the decision to split production and administration," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 480-494, June.
    5. David Audretsch & Oliver Falck & Stephan Heblich, 2011. "Who’s got the aces up his sleeve? Functional specialization of cities and entrepreneurship," The Annals of Regional Science, Springer;Western Regional Science Association, pages 621-636.
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    More about this item

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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