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Manufacturing & Industrial Location Theory – Chapter 10
• Questions• 6 lectures left!• Reference map• Location Theory
• Spatial competition: linear market• Weberian location theory
Linear Market Competition
The importance of location in spatial competition:
Linear market H. Hotelling’s Model
(The Ice Cream Vendor on the beach)
Picture a crowded beach….
Where should ice cream vendors locate?
Ivan lifts a lot of weights…
And the beach with an economic geographer...
Hotelling’s Ice Cream Vendor Problem
Famous urban economic geographer doing ice-cream vendor field work
Pre-computational field evidence remote sensing and recording device
Let’s make some assumptions before we start looking for ice cream vendors… or anything else
Spatial competition in a linear market
Uniform distribution of ice cream consumers on beach Demand for ice cream is inelastic (every consumer
wants a cone no matter what the real price.) Market price is $1, tptn costs are $0.10 per metre Consumers will always buy at the closest market source Vendor is mobile but constrained to 5 locations No commercial inertia
A B C D E
Spatial competition in a linear market
A B C D E
Time t1: Bob enters first.
Units of demand / distance10 10 10 10
Bob captures entire market
0
1
2
3
4
5
6
0 10 20 30 40
distance
co
st
Spatial competition in a linear market
A B C D E
Time t2: Peter enters market.
Units of demand / distance10 10 10 10
Bob already in market at position A.Where should Peter locate?
Spatial competition in a linear market
A B C D E
Time t2: Peter enters market.
Units of demand / distance10 10 10 10
Bob already in market at position A.
Where should Peter locate?
0
1
2
3
4
5
6
0 10 20 30 40
distance
co
st
Bob Peter
Bob Peter
Spatial competition in a linear market
A B C D E
Time t3: Bob Retaliates and Moves
Units of demand / distance10 10 10 10
Bob already in market at position A.
Peter in market at B
BobPeter
Bob relocates to C
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
0 10 20 30 40
distance
co
st
BobPeter
Spatial competition in a linear market
A B C D E
Time t4: Peter Retaliates and Moves to C
Units of demand / distance10 10 10 10
Peter in market at B
BobPeter
Bob in market at C
Peter retaliates and moves to C
0
0.5
1
1.5
2
2.5
3
3.5
0 10 20 30 40
distance
co
st
BobPeter
Spatial competition in a linear market
From free market to regulated markets State establishes market locations Peter and Bob apply for and receive a centrally planned
market stall, exclusive access for the season for a fee
A B C D E
Peter BobBobPeter
Spatial competition in a linear market
Aggregate travel for consumers is reduced, improving welfare
A B C D E
Peter BobBobPeter
0
0.5
1
1.5
2
2.5
3
0 10 20 30 40
distance
co
st
BobPeter
Alfred Weber, 1909
Theory of the Location of Industries Assumptions
Isotropic surface Single product plant Localized raw materials Single point market Labour is available Tpt costs a function of weight and distance
Focus on transportation costs
Alfred Weber, 1909One market, one localized RM source Ubiquitous raw material→ market orientation Pure RM →anywhere from RM location to
market location Are we sceptical? Assuming no terminal costs! Assuming FR on RM= FR on FP
Gross RM →RM orientation
Alfred Weber, 1909
Material index Material/market orientation
>1 <1 =1?
FPWt
RMlocalizedWtMI
.
.
Alfred Weber, 1909One market, two localized RMs Let’s assume two localized RM sources,
S1 & S2
Pure RMs, equal parts of FP weight
Alfred Weber, 1909One market, two localized Gross RMs Let’s assume two localized Gross RM
sources, S1 & S2
Gross RMs, 50% weight loss for each S1, S2, or M = $4
Transport cost matrix: industriallocation at point M
Destination
Origin
S1 S2 M
S1 $2
S2 $2
M
Total Tptn
Cost
$4
Transport cost matrix: industriallocation at point S1
Destination
Origin
S1 S2 M
S1 $0 $1+1+2=4
S2 $2
M
Total Tptn
Cost
$4
