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- Cluster theory is a theory of strategy. Alfred Marshall, in his book Principles of Economics, published in 1890, first characterized clusters as a "concentration of specialized industries in particular localities" that he termed industrial districts. The theory states that concentrating industries in specific regions creates several advantages. For one, greater economic activity occurs when many firms cluster in one area. In turn, this creates agglomeration spillovers which increases the total factor productivity of firms in the same county since they are all competing for the top spot. In most cities/countries economic activity is spatially spread out which can lead to low cost of labor due to low levels of competition. In clusters, areas of high economic activity, labor and land are valued very high as there are superior worker-firm matches in denser labor markets. Clusters produce economies of agglomeration which benefit companies due to the transport cost saving (Glaeser); the closer you are to your neighboring firm the easier it is to exchange goods and ideas. Moreover, the steady presence of an unchanging customer base guarantees their business and steady income. The steady presence of suppliers means low costs for the firms as well as an advantage to agglomeration includes cheaper and more rapid supply of intermediate goods.Clusters promote both competition and cooperation. Clusters create the notion of rivals through numerous firms competing for resources and for customers in a close proximity. Nevertheless, clusters are more efficient in promoting cooperation which typically involves companies in related or supporting industries. The theory states that concentrating industries in specific regions creates several advantages. Due to high volumes of firms in a vicinity, companies are forced to further innovate and produce advancements in their respected industries. These innovations increase the levels of knowledge in the region. Higher production levels arise from increased density as well as increasing levels of the interconnection of businesses. Geographic concentration also creates more personable relations that yield better business in all manners. Often times, city officials will incentivize high-tech companies to set up shop in close relation of each other to induce the cluster effect. In urban studies, the term agglomeration is used. (en)
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- Cluster theory is a theory of strategy. Alfred Marshall, in his book Principles of Economics, published in 1890, first characterized clusters as a "concentration of specialized industries in particular localities" that he termed industrial districts. (en)
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