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

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Market areas and systems of cities

Market Areas and Systems of Cities

Chapter 3

1


Deriving a quantity distance function

Deriving a quantity-distance function

2


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


Demand cone1

Demand cone

4


Market area of spatial monopolists

Market area of spatial monopolists

5


Overlapping market area of two spatial monopolists

Overlapping market area of two spatial monopolists

6


Evolution of circular market areas into hexagonal market areas

Evolution of circular market areas into hexagonal market areas

7


Honeycomb of long run equilibrium market areas

Honeycomb of long–run equilibrium market areas

8


Threshold size market area

Threshold size market area

  • 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 on spatial monopolist

10


Overlapping market areas for three different industries

Overlapping market areas for three different industries

11


Central places

Central places

  • 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


Market areas and systems of cities

13


Market areas and systems of cities

14


Market areas and systems of cities

15


Instability of urban hierarchies

Instability of urban hierarchies

  • 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

  • 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

  • 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

  • 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

  • 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

  • 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

  • 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 market area boundaries

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

23


Market areas and systems of cities

24


Map of adamsville and surrounding minor civil divisions

Map of Adamsville and surrounding minor civil divisions

25


Market areas and systems of cities

26


Minor civil divisions within the trade area for adamsville

Minor civil divisions within the trade area for Adamsville

27


Trade area capture

Trade Area Capture

  • Number of customer equivalents =

28


Pull factor

Pull Factor

  • 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

  • Note: per capita means divided by population.

30


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