Urban Industrial Relocation: The Theory of Edge Cities

Urban economists have recently focused on a ‘newly recognised’ phenomenon: edge cities. In the first part of this paper we review the model of Krugman and Fujita and the model of Henderson and Mitra regarding this urban phenomenon. The introduction of our model represents a possible third way of explaining the edge city process. Our objective is to examine the conditions under which we can observe a relocation of firms from an urban location to a new extra-urban location. Our methodological framework is based on the model of monopolistic competition, which examines the economic relationships among firms at each industrial location and the relationships among distinct firms at different locations. These intrarelationships and interrelationships are examined according to the concept of complementarity. Complementarity in our case combines the notions of (1) firm interaction with cumulative and reinforcing effects, and (2) coordination among firms in local industrial structures. Our interest in this notion stems from the necessity to explain the spatial distribution of firms, particularly the reason why and where firms choose to locate in clusters. In our model we analyse this aspect of location in clusters from the point of view of the elasticity of substitution.