Market areas and systems of cities
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Market Areas and Systems of Cities. Chapter 3. Deriving a quantity-distance function. Demand cone. Demand cone shows the quantity that a spatial monopolist sells to people who live at each distance from its location. Volume of a demand cone is the firm’s total revenue. Demand cone.

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Market areas and systems of cities

Market Areas and Systems of Cities

Chapter 3

1



Demand cone
Demand cone

  • Demand cone shows the quantity that a spatial monopolist sells to people who live at each distance from its location.

  • Volume of a demand cone is the firm’s total revenue

3






Honeycomb of long run equilibrium market areas
Honeycomb of long–run areas equilibrium market areas

8


Threshold size market area
Threshold size market area areas

  • The size of the market area that only allows a firm to earn normal profits: no excess profits.

  • Each industry has a different size market area.

9


Effect of threshold market area on spatial monopolist
Effect of threshold market area areas on spatial monopolist

10


Overlapping market areas for three different industries
Overlapping market areas for areas three different industries

11


Central places
Central places areas

  • Smallest are order 1, and provide level 1 goods (basic needs) to its residents.

  • Level 2 goods are provided by an order 2 city to its residents and to residents of smaller cities.

  • All centers of higher order also provide goods of lower levels to the residents.

12


13 areas


14 areas


15 areas


Instability of urban hierarchies
Instability of urban hierarchies areas

  • Primarily due to changes in transport and communication systems

  • Better roads and better communication systems in general cause large cities to grow, and smaller ones to die more quickly

16


Studying competing centers
Studying competing centers areas

  • Fetter’s law of market areas:

  • Ignores retail agglomeration economies of larger cities

  • Data expensive to gather.

17


Reilly s law of retail gravitation
Reilly’s Law of Retail Gravitation areas

  • No theoretical model

  • Two competing centers will attract consumers from a third location in direct proportion to their respective sizes and in inverse proportion to the relative distances to the consumers’ locations

  • Larger cities have wider markets

  • Cannot account for effect of lower prices in smaller towns

18


Rural cities and economic growth
Rural cities and economic growth areas

  • Small cities are not good catalysts for economic growth.

  • Small cities are associated with smaller multipliers.

  • Spending through small cities benefits the larger cities in that hierarchy

19


Limitations of central place theory
Limitations of Central Place Theory areas

  • Assumptions underlying urban hierarchies never conform perfectly to the model

  • Central place theory explains pre-Industrial Revolution urban systems

  • Applies mainly to shopping models

20


Limitations of central place theory1
Limitations of Central Place Theory areas

  • Goods/ideas never flow up the hierarchy

  • Theory lacks an equilibrium

  • Ignores results of local trade restrictions and artificial barriers of doing business (linguistic, political boundaries)

  • Ignores diseconomies of agglomeration that may cause people to want to move to lower-order places.

21


Implementing riley s law
Implementing Riley’s Law areas

  • Calculate the market area boundaries.

  • Approximate the trade area population.

  • Calculate the trade area capture (TAC) to determine the number of “customer equivalents” served by that industry.

  • Determine the pull factor to see if the area is attracting people from outside its region or losing customers to another region.

  • Forecast potential sales.

22


Calculate the market area boundaries
Calculate the areas market area boundaries

  • Distance from the smaller city to the trade area boundary:

23


24 areas


Map of adamsville and surrounding minor civil divisions
Map of Adamsville and areas surrounding minor civil divisions

25


26 areas


Minor civil divisions within the trade area for adamsville
Minor civil divisions within areas the trade area for Adamsville

27


Trade area capture
Trade Area Capture areas

  • Number of customer equivalents =

28


Pull factor
Pull Factor areas

  • Pull factor > 1: area is serving customers from outside its nature trade area boundaries

  • Pull factor = 1: area is only serving local customers

  • Pull factor < 1: some customers going elsewhere to shop.

29


Potential sales
Potential sales areas

  • Note: per capita means divided by population.

30


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