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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.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-102.

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Date of creation: 18 Dec 2007
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Handle: RePEc:jrp:jrpwrp:2007-102
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