Geographic Cluster Size and Firm Performance

This study clarifies the relationship betweengeographic cluster size and firm performance. Following a review of relevantliterature, several hypotheses are proposed. Data on 789 private and publicbiotechnology firms founded in the United States between 1973 and 1998 are usedto test the hypotheses. According to the data, economies of agglomeration(i.e., clusters) benefit firms in their ability to innovate through patentingand to attract alliance and private equity partners. At the same time, the marginal benefits of cluster size decline as clustersget large. This finding suggests that diseconomies of agglomeration may play animportant role when clusters exceed about 65 firms. The fact that firms aremore likely to fail as a cluster gets larger suggests that firms in largerclusters have different performance thresholds than firms in smaller clusters.(SAA)