El Sistema

Love Thy Neighbor? Differentiation and Agglomeration in the Manhattan Hotel Industry, 1898-1990 Author(s): Joel A. C. Baum and Heather A. Haveman Source: Administrative Science Quarterly, Vol. 42, No. 2 (Jun., 1997), pp. 304-338 Published by: Johnson Graduate School of Management, Cornell University Stable URL: http://www.jstor.org/stable/2393922 . Accessed: 04/09/2011 21:16
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Love Thy Neighbor? Differentiation and Agglomerationin the ManhattanHotel Industry,1898-1990 Joel A. C. Baum
UniversityofToronto

Heather A. Haveman
CornellUniversity

In this paper, we examine two distinct perspectives that explain entrepreneurs' choice of product and geographic location, which determine demand for the output of a start-up and the competition it faces. According to the differentiation perspective, fear of direct competition pushes firms far apart from similar competitors, while benefits ofcomplementary differences pull firms close to dissimilar competitors. According to the agglomeration perspective, spillovers from adjacent competitors pull firms close to similar competitors. Our analysis of multidimensional founding location decisions in the Manhattan hotel industry provides evidence to support a combined perspective in which hoteliers locate new hotels sufficiently close toestablished hotels that are similar on one product dimension (price) to benefit from agglomeration economies, but different on another product dimension (size), to avoid localized competition and create complementary differences.' INTRODUCTION When entrepreneursfound organizations,they make two key decisions: what productsto sell and where to locate. First,they decide how similartheir products should be tothose of established competitors. If their productsare too similarto those of established firms, new ventures will not be able to woo customers, but if their productsare too different, they must launchextensive educationalcampaigns to explainthe benefits of their productsto potentialcustomers. Second, they decide how close to competitors they should locate their new ventures. If they locate tooclose to competitors, new ventures runthe riskof losing business to established rivals,but if they locate too far from competitors, new firms may lose customers who are drawn to a particular locationbut who are not satisfied with competitors' offerthese questions are the concern of baings. Fundamentally, sic economics: both cost structureand access to demand depend on productcharacteristicsandgeographic location. founding is an importanttheme in Althoughorganizational the growing research in organizational ecology (for reviews, see Romanelli,1991; Aldrichand Wiedenmayer, 1993; Baum, 1996), in large part,this research has treated foundings as identicaladditionsto homogenous organizational which populations:the characteristicsof new organizations, define their domains, have not been ofcentral interest. The factors in studies of foundabsence of organization-specific ing stands in sharp contrast to ecological studies of failure and change, in which issues of populationheterogeneity and Hannan, long have been conspicuous (Freeman,Carroll, 1983; Petersen and Koput,1991). Studyingheterogeneity in founding is more complicatedthan studying heterogeneity in attributescannot be used as...