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Lecture 7

GGR252H1 Lecture Notes - Lecture 7: The Home Depot, Postal Codes In Canada

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Herbert Kronzucker

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Lecture 7: February 26
Reilly's Law of Retail Gravitation
"Two cities attract trade from an intermediate town in the vicinity of the breaking point approximately in
direct proportion to the populations of the two cities and in inverse proportion to the squares of the
distances from these two cities to teh intermediate town."
Convers Breakpoint Method Note here.
Huff Model: Note here.
Huff Model: (distance/size/probability)
1. Law of retail gravitation in a probalistic framework.
2. The model: see equation
3. In order to apply the model we need:
a) a measure of size/attractiveness (ie number of stores, employees)
b) a measure of accessbility: distance, travel time.
c) details on market: eg CTs, FSAs, CHHs, POP $, FAMEX
d) estimate of friction of distance associated with specific retail type. (exponent b)
4. Applications: Using the model we can:
a) assess theoretically the existing market size (POP $, HHS $) for each centre by
calculating the portion of each market area (CT/FSA) that will shop at each centre.
b) address a number of "what if" questions (strategy/forecasting)
How will market share change with the introduction of a new competitor/centre? With the
removal of a competitor?
What if the spatial distributions of the market (population) changes?
What if incomes increase? decrease? FAMEX
What if the mobility of teh market increases? decreases? - exponent b.
Economic viability/ planning debates.
5. An example of the application of the HUFF model (see table/diagram)
Overlapping markets vs. spatial monopoly (all market inside that space will go to that centre)
6. Assumptions and criticisms
Unlike the Thiessen and Converse not a spatial monopoly method but utility is still considered to be
measured by relative size and distance. Theoretical vs actual. Other unifying assumptions are much the
same. Model doesnt address what actually is.
Reconsumer behaviour, etc.
Utility adequately measured by size/distance?
Normative!! "What should be" model.
Huff Example
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