Location Theories

1. 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.

2. 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).

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.