要旨：Analysis of the urban agglomeration of economic activity has focused on its benefits for firm productivity. But the marginal-cost savings which agglomeration brings about also free up inputs that can be used to produce higher-quality goods, with their own profitability potential. We use plant-product-level data from Japanese manufacturing to examine agglomeration’s influences on product quality. Results confirm that quality does grow with regional market size, suggesting polices aimed at encouraging urban agglomeration improve competitiveness by raising product quality as well as productivity. Total factor productivity alone, therefore, underestimates agglomeration benefits by ignoring the quality incentives that accompany it.