| From last centry 80s, China's industrial space layout shows a gathering trend. Lots of Enterprises, capital and people gathered in a particular region that enhances regional economic competetiveness, and promote the local economy's rapid development. To use the strong industry cluster competitiveness, to planned guide economy to grow and achieve the great grand progressive which coordinated development our economy from east to west, we must understand the formation mechanism of industrial agglomeration.Modern researchers believe the studies of industrial agglomeration, which firm level study suggest that the concentration of business is the casual result of enterprise location choice, and which the study ignores the maximum profit's pursuit of an enterprise through a collaborative location. They also believe that the industrial agglomeration theory at level of industrial organization, which pay more attention on the industrial economic externalities, and which ingnores the dynamic nature of business location selection. As a result, it is important added theory to establish a link between location choice explation of industrial agglomeration and theory at level of industrial organization.Acording to National Bureau of Statistics released in 2006 China's manufacturing industry 19 sub-industry statistics statistical data, based on the theory of Marshall, Weber, and Krugman's industrial agglomeration this paper choices 8 indicators which represent cost factor, demand factor and innovation factors. It analyses the statistic relation between the degree of industrial concentration and the location factors through statistical regression model. According the regression results, it shows that the scale of demand, production costs and transportation costs and agglomeration degree of correlation is high; demand for size and concentration degree of positive correlation, production costs and transportation costs and agglomeration degree of negative correlation. Based on the price-location equilibrium model which is the chang of Hotelling's model, it analyse the homogeneous companies'location choice which persuit the larger demand, lower production cost and lower transportation cost under the agglomeration effect. The result shows that the homogeneous companies'location concentrating because of the larger demand and lower production cost. But the lower transportation cost has nothing with the homogeneous companies'location concentration. It is possible that consumer can buy complementary products together because the enterprise of complementary product closes to each other. The utility of simultaneous consumption of complementary product consumption has significantly greater than utility generated by consumption separately. Under the combined effect of production cost savings, demand scale and unit transportation cost savings from the production of complementary products to promote enterprise in space, select the adjacent location, the formation of industrial agglomeration. Number-location equilibrium model is a variant of Hotelling linear city model. Based on the number-location equilibrium model, the paper discovers that downstream enterprise close to the upstream locating for the production cost savings which come from agglomeration effect. At the same time, agglomeration effect brings the production scale expansion of the downstream which has the upstream enterprise locate nearly, the unit distance transportation cost savings associated enterprises between the upstream and downstream which has them locat side by side. Production cost savings, production scale expansion and unit distance transportation cost savings of agglomeration effect have enterprise choice centralized location, and cause the formation of industrial agglomeration.Based on the conclusion come from analysis of industrial agglomeration, this paper establishes theory which linkages Results mechanism of industrial agglomeration between theory of the level of industrial organization and studies on enterprise location.
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