ABSTRACT
This chapter begins with the observation that research firms or individual researchers seek locations close to each other because proximity facilitates the exchange of technical information. It aims to motivate by the fact that the observations of cooperation among researchers and the fact that this cooperation seems to require geographical proximity are in stark contrast to economic theory. The chapter presents traditional arguments on competition in innovative activities. Researchers compete for the value of an innovation that is completely protected against imitation and duplication. The chapter reviews the evidence of the behaviour of researchers. Localization arises if the bilateral network links are the more costly the larger the geographic distance between any two potential network members. These costs of maintaining network links induce networks to locate at single points in geographic space. The winner of the innovation race is completely protected against imitation or duplication of the research results. Entry to the innovation process is associated with fixed costs.
