Location Theories
• Primary activities – draw from
the land and are located where
resources are located.
• Improvements in transportation
and communications =
secondary industries less
dependent on resource location.
• Raw materials can be
transported to locations and
converted into products.
• Location Theory – predicting
where business will or should be
located.
Location Theories
• Location of secondary depends
on human behavior and
decision making, on cultural,
political, and economic factors.
• Models are based on
assumptions = decision makers
are trying to maximize their
advantages over competitors.
• Profit = take into account
variable costs (e.g. energy
supply, transport expenses,
labor costs, when choosing
industrial locations).
Location Theories
• Friction of Distance – increase in time and
cost that usually comes with increasing
distance.
• Distance Decay – assumes that the impact
of a function or activity will decline as one
moves away from its point of origin.
• D.D. suggests manufacturing plants will be
more concerned with serving the markets of
nearby places than more distant places.
Weber’s Model
• German, Alfred Weber – did for
the secondary industries what
von Thunen had done for
agriculture.
• Theory of the Location of
Industries (1909) – Weber
eliminated labor mobility and
varying wage rates and calculated
the “pulls” exerted on each point
of manufacturing.
• Least cost theory – accounted for
the location of a manufacturing
plant to minimize three
categories of cost.
Weber’s Model
• Transportation – first and most important
category. Site chosen must entail the lowest
possible cost of moving raw materials to
the factory and finished products to the
market.
• Labor – higher labor costs reduce the
margin of profit (so a factory might do
better farther from raw materials and
markets if cheap labor made up for the
added transport cost).
• Agglomeration – third factor; when a
substantial # of enterprises cluster in the
same area they can provide assistance to
each other through shared talents, services,
and facilities.
• Deglomeration – industries leave the
crowded urban centers and move to other
locations.
Hotelling’s Model
• Similar to Weber, sought to
understand the issue of
locational interdependence.
• Where would two ice cream
vendors standon a beach
occupied by people distributed
evenly along its stretch?
• Farther apart and then move
closer together (towards center),
until they were back-to-back.
• Once there they will stay there
because a decision by one to
move could only hurt
profitability.
Hotelling’s Model
• Location of an industry cannot be understood
without reference to the location of other
industries of like kind.
• Ice cream vendor – only one variable is considered:
the effort to maximize the # of sales.
• Costs for some of the consumers will be greater if
the two sellers cluster at the center of the beach –
for those at the edges will have to walk farther to
buy ice cream than if the two vendors were each
located close to the center of each half of the
beach.
Losch’s Model
• August Losch (1967) – worked to
determine the locations
manufacturing plants could choose
to maximize profit.
• Firms will usually try to identify a
zone in which some kind of profit
can be expected.
• To the left and right of the zone,
distance decay will make sales
unprofitable.
• Firms will try to situate themselves
away from the margins of that zone.
• Other businesses can always come
along and change the configuration
of that zone – can easily cause a
locational change in production in a
capitalist system.