Organizations that produce similar goods tend to concentrate in the sa

Organizations that produce similar goods tend to concentrate in the same geographic area (geographic concentration of production). Economic explanations of such industrial agglomeration explicitly emphasize better performance, and implicitly emphasize lower failure rates, as the key processes contributing to this geographic concentration. Sometimes industries benefit economically from situating themselves in particular locations that offer intrinsic advantages such as access to scarce raw materials or proximity to consumers. In other cases, regardless of the particular location, the colocation of structurally equivalent organizations—those that operate in the same markets—may itself yield advantages such as common labor markets and knowledge spillovers.

Sorenson and Audia point out that these explanations ignore the fact that structurally equivalent organizations also compete with one another for vital resources, and colocation would be expected to increase such competition. Organizational ecology studies support this expectation by showing that organizations apparently compete more intensely within local population boundaries.

Sorenson and Audia propose instead that what maintains geographic concentration is entrepreneurial opportunity, which leads to higher founding rates. Dense local concentrations of structurally equivalent organizations increase the pool of potential entrepreneurs in a region. Beginning entrepreneurs need exposure to existing organizations in the industry to acquire knowledge of the business, ties to scarce resources, and self-confidence. The existing geographic concentration of production constrains access to these resources, so that new foundings tend to reinforce geographic concentration.

1. It can be inferred from the passage that Sorenson and Audia’s argument differs in part from the economic explanations mentioned in the highlighted text in that Sorenson and Audia claim that

A. lower failure rates in an industry are not necessarily a result of better performance
B. geographic concentration of production is a result of higher founding rates
C. access to scarce resources is less important for the success of a new organization than is proximity to consumers
D. structurally equivalent organizations compete with one another for consumers in the same markets
E. certain geographical regions offer intrinsic advantages that can benefit a particular industry economically



2. The author of the passage mentions common labor markets in the highlighted text most probably in order to

A. point out one area in which structurally equivalent organizations must compete for resources
B. elaborate a contrast between industries that exhibit geographic concentration of production and those that do not
C. undermine the argument that industries benefit economically from situating themselves in particular locations
D. highlight an advantage that can be shared by structurally equivalent organizations that are not situated near each other
E. provide an example of an advantage of geographic concentration that is not intrinsic to a particular location



3. The primary purpose of the passage is to

A. suggest a possible explanation for a phenomenon and provide evidence in support of that explanation
B. present certain explanations for a phenomenon and introduce an alternative explanation
C. outline an explanation for a phenomenon and defend that explanation against objections that have been raised against it
D. chronicle the history of a scholarly debate regarding a particular economic phenomenon
E. illustrate how economic theorists’ views about a particular phenomenon have changed