The intra-metropolitan location of producer services: A case study of the advertising industry in the Twin Cities (Minneapolis-St. Paul, Minnesota)

Making use of survey research, this study documents widespread vertical disintegration of production in the Twin Cities advertising industry, as well as spatial variations in the transactional patterns of agencies in different parts of the study area. The employment of flexible production is most evident in the role of outside vendors in supplying advertising agencies with inputs that entail the use of expensive technology or highly specialized skills, along with inputs that are only infrequently used. The backward linkages between advertising agencies and their vendors are overwhelmingly local, especially when compared with the more dispersed geographic pattern of their forward linkages, reflecting the availability of a wide variety of specialized inputs from the well-developed base of vendors in the study area, as well as the importance of face-to-face contacts between agencies and vendors. The intra-metropolitan location of agencies within the Twin Cities has a noticeable effect on the patterns of input usage and outsourcing by agencies. Firms located at the core of the advertising agglomeration in downtown Minneapolis use and outsource a larger number of inputs than do agencies in other locations; they also make use of a larger number of vendors, and have higher levels of expenditures on vendors than is the case for agencies in the remainder of the study area. The findings also demonstrate that advertising agencies outside of downtown Minneapolis do not typically compensate for the relatively higher distance-related transactions costs they face by producing a greater share of their specialized input requirements internally, but instead are simply less likely to make use of these types of inputs than are more centrally located firms.