This study provides evidence regarding the strategic dynamics of competitive clusters. Firms that agglomerate (co-locate) may benefit from the differentiation of competitors without making similar differentiating investments themselves. Alternatively, co-locating with a high percentage of firms with low-cost strategic orientations reduces performance for firms pursuing high levels of differentiation. Further, the lowest-cost providers with the greatest strategic distance from the norm of the competitive cluster reap the greatest benefit from co-location with differentiated firms. We find empirical support for these ideas using a sample of 14,995 U.S. lodging establishments, and controlling for a number of key demand-shaping factors.

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Copyright © 2005 Academy of Management. This article first appeared in The Academy of Management Journal 48, no. 4 (August 2005), 565-581.

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