What is agglomeration? Agglomeration refers to the phenomenon when similar business firms locate near each other to reap economic benefits. One may wonder why similar businesses might locate near each other, because usually a business wants the most benefits for itself, with less competition. Agglomeration, however, has more benefits than one may think.
Agglomeration can be driven by many different factors based on the businesses that are performing the phenomenon. It can be because of levels of urbanization, localization, and the population. Speaking of the population of the area, agglomeration can benefit the common people in many ways. For example, more industry clusters and business firms lead to higher employment rates, higher wages, and just a higher overall sense of community.
Localization and urbanization are two important factors that drive agglomeration. Firms can agglomerate for regional advantages, labor advantages, or transportation advantages. The materials could be close by, there could be abundant labor because of urbanization, and there could also be lower transportation costs. This in turn attracts other competitive firms.
Competitive firms located near each other produce a higher level of revenue than being far apart. This may be surprising but think about it. If a customer goes to a Honda car dealership and doesn’t find what they want, they could go right next door to a Toyota car dealership instead of driving to a whole other area. This way, that area grows and develops, and both firms will benefit from each other instead of being harmed by competition.
Location is a priority. When the location is right, prosperity will surpass competition, even in terms of agglomeration.
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