JOLIKNAL 01 I:(‘ONOMIC THWKY 37. 19-31 (1985) Agglomeration as Spatial Interdependence between Firms and Households* Y. Y. PAPAGEORGIOU Depur/menr of’ Gwgruphy, McMosrer Unitwsity, Hamil~ot~. On/orio. Cutdu L8S 4L.4 AND J.-F. THESE CORE tuui SPUR, Unircwirc; Curholiyue de Louwin, 1348 Lorc~uin-ku- Neure. Belgium Received July 5. 1983: revised January 31, 1985 The purpose of this paper is IO provide a rational for the agglomeration of firms and households over a linear space. A state of comprehensive spatial interdepen- dence is obtained by assuming that every household patronizes several firms. Within this context. supply follows the theory of spatial competition generalized to allow for an endogenous demand structure: and demand follows the tradition of urban economics generalized to allow for an endogenous supply structure. Agglomeration emerges through the interplay between spatial boundaries, trip dis- persion, and the existence of positve protits. Journul qf Economic Literarure Classification Numbers: 022, 931. 1 lY85 Academx Press, Inc. Agglomeration of economic activities over space is an important issue, especially in modern economies where cities become a dominant mode of spatial organization. It is the purpose of this paper to provide a rationale for this phenomenon. Our approach is unorthodox as it draws at will from separately developed, but related, areas such as location theory and urban economics. A fundamental de facto distinction between location theory and urban economics is the following. Whereas the former primarily seeks to deter- * Research partially supported by the Social Sciences and Humanities Research Council of Canada Grant 410-78-0543. Completed while the second author was associated with McMaster University. The authors would like to acknowledge M. Beckmann, H. Btguin. V. Ginsburgh. D. Peeters. A. Shaked, and a referee for their helpful comments. Paper presen- ted at the workshop “Aggfomerdtion in Space” held at Habay-la-Neuve. Belgium, May 1982. 19 0022-0531/85 $3.00 Copyright t 19X5 by Academic Press. Inc. All nghtb 11 reproductwn in any Iorm reserved.