and Thomas Rønde
Andrea Fosfuri: Universidad Carlos III de Madrid, Postal: Universidad Carlos III de Madrid, Departamento de Economía de la Empresa, Calle Madrid 126, 28903 - Getafe, Madrid
Thomas Rønde: University of Mannheim, Postal: University of Mannheim, Copenhagen Business School, and C.E.P.R.; London
Abstract: We analyze firms’ incentives to cluster in an industrial district to benefit from reciprocal technology spillovers. A simple model of cumulative innovation is presented where technology spillovers arise endogenously through labor mobility. It is shown that firms’ incentives to cluster are the strongest when the following three conditions are met: 1) technological progress is rapid; 2) competition in the product market is relatively soft; 3) the probability of a single firm to develop an innovation is neither very high nor very low. We show that some trade secret protection is always beneficial for firms’ profits and stimulates clustering. Excessive protection may impede technology spillovers and reduce firms’ incentives to cluster.
22 pages, May 1, 2002
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