Geography Reference
In-Depth Information
practices are common in the case of clothing and fashion retailers, food
and restaurant retailers, electronics retailers, media, musicals and shows,
and also in the case of automobile showrooms. Indeed, multinationals use
Salop strategies as a means of market entry into new markets, whereby
both
product space and geographical space clustering techniques are
employed simultaneously in order to maintain price levels and avoid the
Bertrand problem, while also extracting maximum consumer surplus rents
from price discrimination. This is a particularly powerful strategy where
market entry is a new phenomenon as it allows the firms to 'test' different
combinations without facing the problems of collapsing prices.
3.7
LIMITED INFORMATION, BOUNDED
RATIONALITY AND LOCATION BEHAVIOUR
As we saw in the Hotelling model, in order to achieve clustering as an
outcome there must be conditions under which it is logical for firms to
follow or copy each other in geographical terms. This following or copying
type of behaviour suggests that many aspects of firm location choices typi-
cally exhibit dynamic features, an insight which is entirely consistent with
the observed location behaviour of MNEs. The conditions under which
such dynamic processes operate will here be seen to be ones of limited
information and uncertainty.
3.7.1
Behavioural Theories of Firm Location
The Weber and Hotelling-type models discussed above are based on
the assumption that rational firms use location behaviour as a strategy
to maximize profits. However, in order for these models to be accurate
we must also assume both that all of the necessary information is avail-
able to all firms, and that these latter have the capacity to make rational
decisions. In reality, however, the information available to firms is often
rather partial, limited or incomplete, with different firms even in the same
industry often having access to different types and levels of information.
Moreover, there may be other issues which militate against firms making
purely profit-maximizing decisions. For these reasons, it could be argued
that in many real-world situations it is not possible for firms to make deci-
sions specifically in order to maximize their profits. At this stage it appears
that the ability of our location models to provide clear insights into firm
location strategies may therefore be somewhat limited.
An alternative perspective that many observers within the management
field employ is to analyse how organizations make decisions based on
