Theory predicts intense price competition when firms cluster with rivals. Yet, strong evidence of clustering is found in previous empirical research. Researchers typically measure clustering by comparing observed location patterns to random assignment. The random assignment benchmark does not,...

A general equilibrium model with increasing return to labor specialization and economies of transaction agglomeration is developed to address the residential land-rent escalation associated with the urbanization process, which is in turn endogenized as a result of the evolution of the division...