LOVE THY NEIGHBOR - DIFFERENTIATION AND AGGLOMERATION IN THE MANHATTAN HOTEL INDUSTRY, 1898-1990

In this paper, we examine two distinct perspectives that explain entre preneurs' choice of product and geographic location, which determine d emand for the output of a start-up and the competition it faces. Accor ding to the differentiation perspective, fear of direct competition pu shes firms far apart from similar competitors, while benefits of compl ementary differences pull firms close to dissimilar competitors. Accor ding to the agglomeration perspective, spillovers from adjacent compet itors pull firms close to similar competitors. Our analysis of multidi mensional founding location decisions in the Manhattan hotel industry provides evidence to support a combined perspective in which hoteliers locate new hotels sufficiently close to established hotels that are s imilar 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.(.)