Urban Industrial Relocation: the theory of edge cities

Urban economists have recently focused upon a ‘newly recognised’ phenomenon: edge cities. In the first part of this paper we review two main interpretations , originating from Krugman and Fujita and the Henderson and Mitra models of this urban phenomenon. After a concise review of these two approaches, we will introduce our model which represents a possible third way of explaining the edge city process. The 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 and then how this new location can generate a specific urban agglomeration pattern in the form of edge cities. Our methodological framework is based upon 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 intra/inter relationships are examined from the point of view of complementarity. Complementarity in our case combines the two notions of (i) firm interaction with cumulative and reinforcing effects and (ii) 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 firms in their location decision often choose to cluster. In our model we analyse this aspect of location in clusters from the point of view of the elasticity of substitution.