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Lecture

POL371H1 Lecture Notes - Insitu, Bounded Rationality, Isochrone Map


Department
Political Science
Course Code
POL371H1
Professor
Harald Bathelt

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Jan 27th 2014
Table of contents
1. Traditional cost minimisation
2. Agglomeration economies
3. Competitive location decisions
4. Spatial cost curves
5. Behavioural location analysis
6. Location decision as a search process
7. Critique of traditional location theory
8. Complex location factors and national competitive advantage
Understanding how industries/Firms locate in diff places and why
Countries develop according to the cities
1. Traditional cost minimisation
Alfred Weber (1909) views industrial location decisions as optimisation processes
Nominated to become the first president of Germany
Dominate industries were all heavy industries- steel was a very dominate material
Wanted to find the optimal places for such industries
Came up with a really good model with good variables
Assumes a completely homogenous space except raw materials
Assumptions of Webers analysis:
o1 single-plant firm looks for an optimal location
o2 raw materials are used to produce one product- once the products r
finished they will be shipped to one consumption place
Distinguished b/w 2 types of materials- Weber’s, location triangle- gross localized
materials r easy to access – material u have to mine
The other he calls pure localized materials
If u have 3 types of martials u can chose where they go
oTechnological/spatial conditions do not differ between places
(a) Step 1: only transportation costs are variable
Search for a location that minimises transportation costs
It is to be found within the so-called location triangle
Location decision depends on the characteristics of raw materials
oUbiquities (everywhere available at the same cost) - the optimal location
will be on the spot on the site where the transportation costs r minimal. U
an always locate the materials in eth market

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oLocalised materials (pure vs. gross localised materials)- the optimal place
will also be in eth market cause the transportation costs will also be less
cause its eth shortest transport distance
1. Traditional cost minimisation
(b) Step 2: introducing spatially variable labour costs
Labor costs is a variable- a substantial amount of cost can be saved if u produce it
where labor cost is less
Weber constructs lines of equal transportation costs around each raw material location
(isotimes)- lines of equal transportation costs. Then add up all 3 systems and u and up with a
mountain of transportation cost. The cheapest poit of eth valley is where P is.
Additional transportation costs that u would have to pay when going away from P,
Spatial aggregation leads to “transportation cost mountains”
A so-called critical isodapane is identified to make decisions:
(a) Staying at the location of minimal transportation costs, or
(b) Relocating to another location with lower labour costs
(b) Step 3: introducing agglomeration costs
4 diff firms- if firms cluster in eth same place, they can save money on transportation if
they locate together
Only transportation and labor cost for locating close to the firms
Cost advantages are assumed to result from the agglomeration of firms of an industry (e.g.
joint input sourcing)
This leads to a reinvestigation of the location decision
2. Agglomeration economies
Study of Hoover (1937) of the U.S. shoe/leather industry
Identification of different types of “economies of concentration”
(a) Economies of scale (internal economies)
Average production cost decrease the more u produce
Very powerful mechanisms in eth economy b/c of eth cost saving advantages
Drives economy to a great deal
Consequence- there r relatively few large producers
Large imbalance b/c of this effect
(b) Agglomeration economies (external economies)
oLocalisation economies –when firms in eth same industries locate
together. Huge labor market developing naturally
oUrbanisation economies- derive from diversity
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Economic benefit of diversity –economies of big cities. Diff skills and diff companies
Lots of manufacturing industries- it can benefit if you have diversity in labor markets
Good to have combinations of selling a variety of goods. Selling shoes and selling
groceries. EX- Walmart
(b) New economies of scope (Scott 1988)
Markets change drastically
Refers to eth situation of how production is organized
Produce large production of producrs but at small cost
Lots of buyers in diff locations
Segmentation of markets requires large product varieties
In part, economies of scale become less important
New economies of scope result from multi-purpose machinery which can be flexibly
configured
oProduction of larger variety at a single location, instead of specialisation
between firms/locations
3. Competitive location decisions
Imagine u have a liner market- ice cream sellers
Minimize effort for the consumer
Overall, most ppl will have to travel more than before if they park by each other in the
centre. So if they r both in the centre they lose
Hotelling (1929) investigated the relation of competition and strategic decision making
Example: two ice-cream sellers (A/B) make business at a beach
Question: where should they have their locations?
Ideally, A would locate close to the one end, B close to the other
Visitors of the beach buy ice-cream at the closest seller
BUT: seller A might move a bit closer toward the centre of the beach to intrude into the
market area of B
Seller B might react by also moving closer to the centre
At the end, both would locate in the centre: here, none could expand their market at the
expense of the other
BUT: this is not optimal in terms of overall costs
4. Spatial cost curves
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