agglomeration economies

For an industry, the benefits of locating in a densely peopled and highly industrialized situation. The market is large, but concentrated in a relatively small area. Transport costs are therefore low, so that many specialized industries can evolve, since local demand is sufficiently high. Further benefits arise because of functional linkages, and through external economies. The science park in Cambridge, UK, illustrates the combination of: ‘blue skies’ as well as applied research at the university; international links with other research institutions (MIT, for example); the research and development which can spin off from these; the high levels of skills in information technology; the infrastructure supplied by governments and utilities; and the ‘brand name’: Cambridge. This combination gives the city a powerful competitive advantage. See cluster, institutional thickness.

However, when land costs and congestion are high, these agglomeration economies may be offset to such an extent that decentralization begins to set in. See also concentration and centralization.