Economies of Agglomeration - Disadvantages

Disadvantages

Referring back to the growth of cities and that the existence of them can only persist if the advantages outweigh the disadvantages, it is important to know that agglomeration economies may also lead to traffic congestion, pollution and other negative externalities caused by the clustering of a population of firms and people and that this may lead to diseconomies of scale. As stated above, these factors are what decrease the pricing power of firms because of the many competitors in the area as well as a shortage of labor and lack of flexibility among firms toe their laborers around. Large cities experience these problems, and it is this tension between agglomeration economies and agglomeration diseconomies that may contribute to the growth of the area, control the growth of the area, or cause the area to experience a lack of growth. The ways of maintaining a stable outcome for agglomeration economies is for clustering to create "knowledge spillovers" that prevail over these negative externalities.