January 1998
Article
Business Economics

The Adam Smith Address: Location, Clusters, and the 'New' Microeconomics of Competition

Format:Print

Abstract

The new microeconomics of competition is contained in frameworks that structure the complexity of competition and inform managers of the choices they must make. The role of location has shifted from factor endowments and size to productivity growth; factor inputs are abundant and accessed via globalization. To increase productivity, factor inputs must improve in efficiency, quality and ultimately specialization to particular cluster areas. A cluster is a critical mass of companies in a particular location (a country, state, region or even a city). Governments have significant roles in creating an environment to support rising productivity, and companies have a different agenda than just building offices or factories. The impacts of this approach on contemporary policy issues, especially the environment and inequality, are presented.