Externalities In The Cluster Of Firms: Their Mechanisms, Influences, And Governance

The firm cluster is an increasingly important neither-market-nor-hierarchy form of industrial organization that has two basic dimensions, geographical and industrial dimensions. So-called firm cluster externalities refer to externalities determined by the geographical characteristics and industrial characteristics of the cluster of firms. The purpose of this paper is to study the mechanisms, influences, and governance of firrn cluster externalities in order to deepen the understanding of firm cluster externalities and the relevant phenomena. This paper heavily relies on conceptual models and geometrical models to make positive analyses of firm cluster externalities and the relevant phenomena. First of all, this paper summarizes and reviews the relevant existing literatures. Building on this, the general theories of the firm cluster and firm cluster externalities are introduced. After that, analyses of the mechanisms, influences, and governance of firm duster externalities are presented. The basic conclusion drawn from our study on the mechanisms of firm cluster externalities is that firm cluster externalities mainly develop in three major forms of interaction: interaction through the market mechanism, the network-type interaction, and strategic interaction. These involve many important cluster-related phenomena, such as the pecuniary externalities, regional brand effects, social capital eeumulation effects, knowledge spillovers, cumulative causalities, vertical disintegration of firms in the cluster, network externalities of division of labor,and strategic spillovers, etc. The influences of firm cluster externalities are pervasive. This paper mainly explores the effects of spillover of knowledge about business pattern of the cluster of firrns on the life cycle of the cluster of firms, the effects of technology spillover on the R&D spending of firms in the cluster, the effects of social capital(e.g., trust) on transaction costs in the cluster of firrns, and the adverse effects of congestion effects in the cluster on the competitiveness of the cluster of firms. Finally, two basic governance forms of firm cluster externalities, alliance governance and government governance, are explored.