Agglomeration and Endogenous Absorptive Capacities: Hotelling Revisited

Caroline Hussler, André Lorentz and Patrick Ronde ()
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Patrick Ronde: GRAICO - Universite de Haute Alsace

No 2007-102, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: 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.

Keywords: Spatial Agglomeration; Endogenous Spillovers; Absorptive Capacity; Non-Cooperative Game (search for similar items in EconPapers)
JEL-codes: L13 O33 R12 (search for similar items in EconPapers)
Date: 2007-12-18
New Economics Papers: this item is included in nep-geo, nep-knm and nep-ure
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2007-102

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