Geographic agglomeration, knowledge spillovers, and competitive evolution

Firms in the same industry often display a striking propensity to agglomerate or locate in close geographic proximity (Enright, 1991; Krugman, 1994, 1995; Porter, 1990a, 1990b, 1998; Pouder & St. John, 1996). This study develops two competing theoretical perspectives from which this phenomena can be examined: (1) a knowledge-based view that focuses on the public-good nature of geographically-localized knowledge spillovers, and (2) a competitive perspective that focuses on the beneficial evolutionary effects of competitive rivalry. Both of these theoretical lenses suggest that geographic agglomeration should affect firm commitment to innovation, firm innovative output and firm performance. Furthermore, it is hypothesized that geographic agglomeration will moderate both the relationship between firm commitment to innovation and firm innovative output and the relationship between firm innovative output and firm performance.;Hypotheses are tested using a panel data sample of firms from the PC segment of the prepackaged software industry (SIC 7372). Results suggest that geographic agglomeration directly and negatively impacts firm innovative output. Agglomeration also weakens the relationship between firm commitment to innovation and firm innovative output. Finally agglomeration appears to strengthen the relationship between firm innovative output and performance when revenue-based performance measures are employed.