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Agglomeration and Endogenous Absorptive Capacities: Hotelling Revisited


  • Caroline Hussler

    (RECITS - Universite de Technologie de Belfort Montbeliard; BETA - Univeriste Louis Pasteur)

  • Andre Lorentz

    (Max Planck Institute of Economics, Evolutionary Economics Group, Jena)

  • Patrick Ronde

    (GRAICO - Universite de Haute Alsace)


This paper proposes a theoretical model of spatial duopoly, where the location, on the one hand, and the absorptive capacity of ï¬ rms as function of their internal R+D investment, on the other hand, endogenously determine the maximum level of knowledge spillovers ï¬ rms might absorb. Our goal is to test whether this new modelling of spillovers affects the traditional outcomes in terms of ï¬ rms location choices . We solve a three-stage game, where ï¬ rms choose their geographical location, prior to their level of internal R+D expenditures, and ï¬ nally compete in prices. We found that, at the optimum, ï¬ rms choose the same level of internal R+D and set the same price, independently of their location. Moreover, ï¬ rms locate symmetrically and tends to agglomerate in the center of the market as the transportation costs increase, knowledge spillovers being in that case maximum.

Suggested Citation

  • Caroline Hussler & Andre Lorentz & Patrick Ronde, 2007. "Agglomeration and Endogenous Absorptive Capacities: Hotelling Revisited," Jena Economics Research Papers 2007-102, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2007-102

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    Cited by:

    1. Yang, Chih-Hai & Lin, Hui-Lin & Li, Hsiao-Yun, 2013. "Influences of production and R&D agglomeration on productivity: Evidence from Chinese electronics firms," China Economic Review, Elsevier, vol. 27(C), pages 162-178.
    2. Bouguezzi, Fehmi, 2010. "Technology transfer in a linear city with symmetric locations," MPRA Paper 21055, University Library of Munich, Germany.
    3. Samuli Leppälä, 2018. "Theoretical perspectives on localized knowledge spillovers and agglomeration," Papers in Regional Science, Wiley Blackwell, vol. 97(3), pages 467-484, August.

    More about this item


    Spatial Agglomeration; Endogenous Spillovers; Absorptive Capacity; Non-Cooperative Game;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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