mccann urban and regional economics.pdf

7/23/2019 McCann Urban and Regional Economics.pdf

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S b ?BANANI REGIONAL ECONOMICS

With the pointsM4, andM, s the spatial reference points, the new Weber optimum

is G. At point G it becomes advantageous for the firm to serve market point M ather

than

M3. his is because M, is nearer toG than M,, nd @

) >@ 3d3).Therefore,

the firm makes a greater profit from sellingautomobiles to marketM, han to marketM,.

The firm could switch markets completely from

M

o

Ms.

lternatively, it could decide to

supply both markets M, to M,. Under these conditions, it may be that a new optimum

location of

H arises, in which the firmat H buys from two supplier locations

M

and M,,

and sells at two market locations, M3 andMs. ore complex arrangementsare possible.

or example, in order to guarantee sufficient supplies of steel inputs for the newly

expanded automobile market of (M3 M, ,he firm may decide to continue to purchase

steel from both MI and

M4,

s well as purchasing plastic from

M,.

Now we have a Weber

location-production problem with M,, M,, M3,M4,nd M, as spatial reference points.

Once again, this will move the Weber optimum away from point H, and will also alter the

inter-regional.equilibriumwage gradient.

This type of geometrical arrangement, in which a firm has multiple input sources and

multiple okput market locations, is the norm for firms in reality. Although our analysis

here has been developed primarily with only two input source locations and one output

market location, the Weber location-production arguments

and the associated

isodapane

analysis are perfectly applicable to the case of firms with multiple input

and

output

locations. The reason for employing the ' angular case of the two input locations and

one output market location is that this particular spatial structure s simply the easiest

two-dimensional model to explain. The model is designed to help us understand the

advantages which geography confers on particular locations as sites for investment. A

first key feature of the Weber model is therefore that it allowsus to understand the factor

price conditions under which other areas

will

become more attractive as locations for

investment. Secondly, the model allows us to see location as an evolutionary process, in

which changes in factor prices can engender changes in location behaviour,

which

them-

selves can change the supply linkages between suppliers, firms, and markets. Industrial

location problems are inherently evolutionary in their nature as firms respond to new

markets and products by changing their locations, and by changing the people they buy

from and the people they sell to.

All

of these are spatial issues.

There is one final issue relating to the Weber model which needs to be addressed. In

reality, firms are constantly changing their input suppliers and output markets in

response to changes in input and output market prices. From our Weber analysis, these

changes will also imply that the optimum location of the firm is continuously changing,

and that in order to ensure the profitability of any particular location the equilibrium

inter-regional factor price gradient must also be conunuously changing. However, obser-

vation tells us that 6rms n reality do not move 7ery frequently, and this

raises

the

question of the extent to which the Weber model is a useful analytical tool to describe

industrial location behaviour. I

The reasonwhy firms arenot continuouslymovin s that the relocation process itself

usually ncurs very sip-iscant costs,suchas the dismantlingof equipment, he

moving

of

peopie

and

the K i r ~ gf new staff. Part of the Oansartions

mts

assodaied

with

relo~xi-

tion are ako reiated to inforrilaticn a r~d ncewinty, which are ~ G ~ CS e

wil

dzzl

w ~

l akr n

the chapter. However, within the above framework we

can

easily ifcorporate


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land; consequently, local real-estate prices wi l l tend to ncrease, as w i l l ocal abour prices.

These ircreases in the prices n f local factor inputs w i l l reduce profits, ceteris paribus

thereby reducing the attractiveness of the area as a location for the firms. This raises the

question how ong wi ll t he cluster of firms continue to exist profitably in he area? This

question of industrial clustering is the topic o f the nex t chapter,

in

which we discuss

agglomeration economies, the growth of cities and urban hierarchies, and centre-

periphery relationships.

Discussion questions

1 How does the location of input sources and output markets determine the location

behaviour of the firm7

2

To what extent are firm-locational changes dependent on the substitution

characteristics of the firm's production unction?

3

In what ways can space confer monopoly power?

4 What role can location play in the competitive strategy of firms. and how are location

and price strategies interrelated?

5 What role do logistics

costs

play in determining location behaviour?

6

What insights are provided for industrial ocation analysis by behavioural theories of

firm behaviour?

Appendix 1 I

heOne Dimension Location

Problem

Within the Weber framework, we can summarize the relative strength of the

transportation pull' towards any particular nput source point.

If

at any particular

location. A(m;t,d,) > A(m$J2) as the firm moves away from input source1and towards

.

input spurce2 (where A represents a marginal change), the firm should move towards

input. source 1. This i s because the marginal increase in the total transport costs for the

shipment of input

1

s greater than the marginal fall in the total transport costs for the

shipment of input

2

Alternatively, if A(m,t,d,)


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hapter3

The Spatial Structure of the

Urban conomy

3 1

ntroduction

In the two previous chapters we discussed the reasons for the variations in the spatial

patterns of industrial investment and activity. As we have seen, firms will locate in differ-

ent areas for different reasons, and where this behaviour leads to the co-location of firms

we observe spatial concentrations of investment. In some cases, the various advantages

which are sometimes assodated with spatial concentrations of such activity, give rise to

the growth of both cities

and

also hierarchical systems of cities. As we know, individual

cities c n grow to be very large, and in some cases as large as some individual small

countries. There will, however, be a variety of different people living within such spatial

concentrations, and

lso

there will be a variety of activities taking place within the city.

This consequently brings us to the question of how such people and activities are distrib-

uted within the individual urban economy.

In discussing how people and activities are distributed within the urban economy we

focus on the question of urban land use. In other words, we try to explain why certain

groups of people, or certain industrial activities, occu'py land at particular locations

within the city economy. Observation of the behaviour of urban economies suggests that

there are two key features common to all urban areas. These features are that, in general,

land prices tend to fallwith increasing distance from the city centre at a diminishing rate,

and that the average land area occupied by each household or business activity tends to

increase with increasing distance away from the city centre. Given that there is a market

for land in which land is allocated according to users, in order to understand the alloca-

tion of land within the

city

and the relationship between location and land prices, we

must therefore ask the question of how much people or firms are willing to pay in order

to occupy land at any particular location. In sections

3.2

to

3.4

of this chapter we will

construct a set of models namely a von Thunen

model

and a bid-rent model, which are

most commonly used to explain

such

phenomena. In the subsequent sections, these

models

will

be contrasted with alternative explanations of the stnccture of urban land use

and land prices.

We begin y constructing a one-dimeniicna

model

of the relaYonship between loca-

tic? and laid-rent,

bs d

on the analysis

o

von Thanen (1826). The VOE Tnunen mcdel


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mccann urban and regional economics.pdf

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