An Economic Theory of Regional Clusters

Posted: 29 Jun 2000

See all articles by Paul Belleflamme

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Abstract

This paper investigates the impact of localization economies on firms' locations. It is known that such external effects lead to substantial cost reductions when firms are located together. However, when they are agglomerated, firms also face the prospects of tough price competition whose intensity can be relaxed through product differentiation. In addition, their access to isolated markets varies with the level of transport costs. As a result, there is a trade-off whose solution depends on the structural parameters of the economy. The market and optimal solutions are compared for the case of small and large groups of firms.

Key Words: cluster, trade, localization economy, market structure

JEL Classification: L10

Suggested Citation

Belleflamme, Paul and Picard, Pierre M. and Thisse, Jacques-François, An Economic Theory of Regional Clusters. Journal of Urban Economics, Vol. 48, No. 1, Pp. 158-184, July 2000. Available at SSRN: https://ssrn.com/abstract=232653

Paul Belleflamme (Contact Author)

CORE and Louvain School of Management, UCL (Université Catholique de Louvain) ( email )

34 Voie du Roman Pays
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+32 10 47 82 91 (Phone)
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HOME PAGE: http://perso.uclouvain.be/paul.belleflamme/Site/Home.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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