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1 Market Areas and Systems of Cities Chapter 3. 2 Deriving a quantity-distance function.

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Presentation on theme: "1 Market Areas and Systems of Cities Chapter 3. 2 Deriving a quantity-distance function."— Presentation transcript:

1 1 Market Areas and Systems of Cities Chapter 3

2 2 Deriving a quantity-distance function

3 3 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

4 4 Demand cone

5 5 Market area of spatial monopolists

6 6 Overlapping market area of two spatial monopolists

7 7 Evolution of circular market areas into hexagonal market areas

8 8 Honeycomb of long–run equilibrium market areas

9 9 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.

10 10 Effect of threshold market area on spatial monopolist

11 11 Overlapping market areas for three different industries

12 12 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.

13 13 Table 3-1. Functions available in by Central Places in Turkey. Note that all higher-order centers also offer all goods and services offered from the lower-order centers. Zero-order center First- order center Second- order center Third- order center Fourth-order center Fifth- order center Sixth- order center Number of places 35, Retail goods Partial con- venience Con- venience goods Full shopping weekly market; gas stations; building materials Specialize d retail Specialized shopping Luxury shopping Hospi- tality industry Coffee shop Eatery Hotel and restaurant Luxury hotels and res- taurants Edu- cation Primary school Middle school Secondary schools Two-year higher education institution University Major university research center

14 14 Table 3-1. Functions available in by Central Places in Turkey. Note that all higher-order centers also offer all goods and services offered from the lower-order centers. Zero- order center First- order center Second-order center Third-order center Fourth- order center Fifth- order center Sixth- order center Religious centers Mosque Financial Services Credit coop- erative Bank Financial services Special- ized financial services Health and Medicine Dispen- sary Doctors; Medical services Hospital, specialized medical services Major hospital Govern- ment Post office; sub- district level govern ment offices Court house, district-level government offices; military offices; police station Specialized courts; Province- level government offices Regional offices of public works agencies

15 15 Table 3-1. Functions available in by Central Places in Turkey. Note that all higher-order centers also offer all goods and services offered from the lower-order centers. Zero- order center First- order center Second- order center Third-order center Fourth- order center Fifth-order center Sixth-order center Legal services Other services Repair services; partial business services Business services; design bureaus Specialized business services EntertainmentCinema Theater, concert hall Transpor- tation Bus and minibus terminal service Inter-city bus terminal Major bus and train terminal; airport Major airport International airport Manu- facturing Artisan workshops Limited manu- facturing Manu- facturing Headquarters of firms; major manu- facturing Headquarters of major firms; diverse manu- facturing Source: Adaptation of Mutlu Reprinted by permission from Blackwell Publishing.

16 16 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

17 17 Studying competing centers Fetter’s law of market areas: Ignores retail agglomeration economies of larger cities Data expensive to gather.

18 18 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

19 19 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

20 20 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

21 21 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.

22 22 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.

23 23 Calculate the market area boundaries Distance from the smaller city to the trade area boundary:

24 24 Table 3A–1. Population and Distance Data Needed to Implement Reilly’s Law CitiesPopulation Distance from Adamsville Calculated Distance to Market Boundary Calculated Distance to Market Boundary from Adamsville Using Reilly’s Law Adamsville4, Bethel4, = Catalina4, DeWitt3, Edgemont5, Florence2,

25 25 Map of Adamsville and surrounding minor civil divisions

26 26 Table 3A–2. Calculating Total Trade Area Population Minor civil division (Column 1) Population (Column 2) Estimated share of land area in market for Adamsville (Column 3) Total population in market area by minor civil division. (Multiply Column 2 by Column 3.) Adams Township9361%9.36 Adamsville4,161100%4,161 Benson Township59185% Clyde Township1,54580%1236 Calhoun830100%830 Dawson Township9532%19.06 Evans Township3,65445%1,644.3 Floyd Township5,58387%4, Gilbert Township1,73025%432.5 Henry Township1,76610%176.6 Total Trade Area Population13,868.38

27 27 Minor civil divisions within the trade area for Adamsville

28 28 Trade Area Capture Number of customer equivalents =

29 29 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.

30 30 Potential sales Note: per capita means divided by population.


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