Manufacturing

1
Manufacturing Industrial Location Theory
Chapter 10

• Questions
• 6 lectures left!
• Reference map
• Location Theory
• Spatial competition linear market
• Weberian location theory

2
Linear Market Competition

• The importance of location in spatial
  competition
• Linear market
• H. Hotellings Model (The Ice Cream Vendor on
  the beach)
• Picture a crowded beach.

3
Where should ice cream vendors locate?

• And the beach with an economic geographer...

Ivan lifts a lot of weights
4
Hotellings Ice Cream Vendor Problem
Lets make some assumptions before we start
looking for ice cream vendors or anything else
5
Spatial competition in a linear market
A
B
C
D
E

• 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

6
Spatial competition in a linear market
Time t1 Bob enters first.
A
B
C
D
E
Units of demand / distance
10
10
10
10
Bob captures entire market
7
Spatial competition in a linear market
Time t2 Peter enters market.
A
B
C
D
E
Units of demand / distance
10
10
10
10
Bob already in market at position A. Where should
Peter locate?
8
Spatial competition in a linear market
Time t2 Peter enters market.
A
B
C
D
E
Units of demand / distance
10
10
10
10
Bob already in market at position A.
Where should Peter locate?
9
Spatial competition in a linear market
Time t3 Bob Retaliates and Moves
A
B
C
D
E
Units of demand / distance
10
10
10
10
Bob already in market at position A.
Peter in market at B
Bob relocates to C
10
Spatial competition in a linear market
Time t4 Peter Retaliates and Moves to C
A
B
C
D
E
Units of demand / distance
10
10
10
10
Peter in market at B
Bob in market at C
Peter retaliates and moves to C
11
Spatial competition in a linear market
A
B
C
D
E
Peter
Bob

• 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

12
Spatial competition in a linear market
A
B
C
D
E
Peter
Bob

• Aggregate travel for consumers is reduced,
  improving welfare

13
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

14
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

15
Alfred Weber, 1909 Material index

• Material/market orientation
• gt1
• lt1
• 1?

16
Alfred Weber, 1909One market, two localized RMs

• Lets assume two localized RM sources,
• S1 S2
• Pure RMs, equal parts of FP weight

17
Alfred Weber, 1909One market, two localized
Gross RMs

• Lets assume two localized Gross RM sources, S1
  S2
• Gross RMs, 50 weight loss for each
• S1, S2, or M
• 4

18
Transport cost matrix industriallocation at
point M
Destination Origin S1 S2 M
S1 2
S2 2
M
Total Tptn Cost 4
19
Transport cost matrix industriallocation at
point S1
Destination Origin S1 S2 M
S1 0 1124
S2 2
M
Total Tptn Cost 4