![]() ![]() ![]() What role do logistics costs play in determining location behaviour? and how are location and price strategies interrelated? What role can location play in the competitive strategy of firms. In what ways can space confer monopoly power? To what extent are firm-locational changes dependent on the substitution characteristics of the firm's productionfunction? How does the location of input sources and output markets determine the location behaviour of the firm7 This raises the question h o w long w i l l the cluster o f firms continue t o exist profitably in the area? This question o f industrial clustering is the topic of the next chapter, in which we discuss agglomeration economies, the growth of cities and urban hierarchies, and centreperiphery relationships. These ircreases in the prices n f local factor inputs w i l l reduce profits, ceteris paribus, thereby reducing the attractiveness of the area as a location for the firms. Land consequently, local real-estateprices will tend to increase, as w i l l local labour prices. ![]() However, within the above framework we can easily ifcorporate I Part of the Oansartions mts assodaied with relo~xition are ako reiated to inforrilaticn ar~duncewinty, which are ~ G ? ~ C we S wil! dzzl w L ~ l a k r in the chapter. ![]() The reason why firms are not continuously moving is that the relocation process itself usually incurs very sip-iscant costs, such as the dismantlingof equipment,the moving of peopie, and the K i r ~ g of new staff. However, observation tells us that 6rms in reality do not move 7ery frequently, and this raises the question of the extent to which the Weber model is a useful analytical tool to describe industrial location behaviour. From our Weber analysis, these changes will also imply that the optimum location of the firm is continuously changing, and that in order to ensure the profitability of any particular location the equilibrium inter-regionalfactor price gradient must also be conunuously changing. In reality, firms are constantly changing their input suppliers and output markets in response to changes in input and output market prices. There is one final issue relating to the Weber model which needs to be addressed. Industrial location problems are inherently evolutionary in their nature as firms respond to new markets and products by changing their locations, and by changing the people they buy from and the people they sell to. Secondly, the model allows us to see location as an evolutionary process, in which changes in factor prices can engender changes in location behaviour, which themselves can change the supply linkages between suppliers, firms, and markets. A first key feature of the Weber model is therefore that it allows us to understand the factor price conditions under which other areas will become more attractive as locations for investment. The model is designed to help us understand the advantages which geography confers on particular locations as sites for investment. The reason for employing the '&angular case of the two input locations and one output market location is that this particular spatial structure is simply the easiest two-dimensional model to explain. Although our analysis here has been developed primarily with only two input source locations and one output market location, the Weber location-production arguments and the associated isodapane analysis are perfectly applicable to the case of firms with multiple input and output locations. This type of geometrical arrangement, in which a firm has multiple input sources and multiple okput market locations, is the norm for firms in reality. Once again, this will move the Weber optimum away from point H, and will also alter the inter-regional.equilibriumwage gradient. Now we have a Weber location-production problem with M, M, M3, M4,and M, as spatial reference points. or example, in order to guarantee sufficient supplies of steel inputs for the newly expanded automobile market of (M3+ M,),the firm may decide to continue to purchase steel from both MI and M4,as well as purchasing plastic from M. Under these conditions, it may be that a new optimum location of H arises, in which the firm at H buys from two supplier locations M, and M, and sells at two market locations, M3and Ms.More complex arrangements are possible. The firm could switch markets completely from M,to Ms.Alternatively,it could decide to supply both markets M, to M. At point G, it becomes advantageous for the firm to serve market point M,rather than M3.This is because M, is nearer to G than M,and - t&) > - t3d3).Therefore, the firm makes a greater profit from selling automobiles to market M,than to market M. With the points M4,M,and M,as the spatial reference points, the new Weber optimum is G. ![]()
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