Localization economies

A firm that benefits from localization economies will be pulled toward other firms in the industry. Why? to share resources such as inputs, knowledge spillovers, advertising firms, firms supplying intermediate inputs that require face-to-face contact, or labor pool. Firms in the cluster indirectly exploit the scale economies in producing the interpediate input, and can tap the input suppliers at top speed (O'Sullivan 2003, Ch. 4).