Industrial Models
Industrial Models
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Primary industries have to be located near the
source of materials
Secondary industries are becoming less
dependent on resource location
Location theory: predicts where businesses
will or should be located
Location depends on raw materials, labor,
transportation, and infrastructure.
What businesses want
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A decision maker would want to maximize their
advantages over competitors, and make as much
profit as possible
They have to take friction of distance into account
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Friction of distance: the increase in time and cost that
comes with increasing distance
The further away you send the goods to be
manufactured, the greater the friction of distance is
Raw Materials and Markets
Weber’s Model
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Alfred Weber (1868-1958) is the von Thunen
of industry
He developed a model for industrial location
called the Least Cost Theory
His theory accounts for the location of a
manufacturing plant in terms of the owner’s
desire to minimize 3 categories of cost:
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Transportation, labor, and agglomeration
Transportation
Transportation is the most important factor
 A site must entail the lowest possible cost of moving
raw materials to the factory, and finished goods to
market
Notes:
-Truck is the least expensive mode of transport over
short distances
-Air is most effective for high value, or perishable
goods
-Shipping is the cheapest form of transportation over
long distances
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Labor
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Higher labor costs reduce margin of profit
Companies might do better to locate in areas
where labor is cheap, if the price of labor
justifies the higher transportation costs
Agglomeration
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Agglomeration: a substantial number of enterprises
cluster in the same area, and share talents, services,
and facilities
Ex: office furniture
Big city locations are desirable
However, it also causes higher rents and wages
Leads to deglomeration (leaving urban centers for
other locations)
Examples of Agglomeration
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World Cities: an important city in the global
economy
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Immanuel Wallerstein proposed the World-System
Theory that social change in the developing world is
linked to economics of the developed world
First tier cities include Tokyo, London, and New
York
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They are all centers of global commerce
Demonstrate agglomeration
Example: Wall Street
Weber’s Locational Theory Triangles
Triangle A
represents a
situation where
M is the
market, and S
represents
primary
sources
Triangle B
represents a
situation
where M is the
market, S
represents
primary
sources, and
P represents a
manufacturing
center
Assumptions of Least Cost Theory
Know all six assumptions
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Area is completely
uniform (physically,
politically, culturally and
technologically) - This is
known as the isotropic
plain assumption.
Manufacturing involves a
single product to be
shipped to a single
market whose location is
known.
Inputs involve raw
materials from more than
one known source
location.
Labor is infinitely available,
but immobile in location.
 Transportation routes are not
fixed but connect origin and
destination by the shortest
path
 Transportation costs directly
reflect the weight of items
shipped and the distance they
are moved.
-Even if you think Weber leaves
much to be desired, he did
set in motion a debate on
SPATIAL aspects of
economic activities
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Hotelling’s Model
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Harold Hotelling (1895-1973) was an
economist who built on Weber’s model
He wanted to understand locational
interdependence
Asked what two ice cream vendors would do
on a beach
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Said they would begin at opposite ends, and then
gradually end up back-to-back
Once there, they would be unlikely to move
Hotelling Continued
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His theory shows that location of one industry
cannot be understood without referencing
other similar industries
Think about the ice cream example
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Is standing back-to-back the best place for the
vendors if they want to maximize profits?
Is that best for the customers?
Is that best for visibility?
Losch’s Model
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August Losch examined where a
manufacturing plant could locate to maximize
profits
He added spatial influence of consumer
demand, and production costs to his
calculation
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Businesses will try to locate within a margin of
profitability, and to the left or right of the margin,
distance decay will make sales unprofitable
Site and Situation
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Site factors that influence the location of an
industry include land, labor, and capital
Situation factors include access to inputs and
access to markets
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Situation factors are chosen to minimize
transportation costs