Geography Reference
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cost TC function is maximized. On the other hand, if the firm is aiming to
maximize sales it will locate at e , and if it is aiming to minimize production
costs and to maximize production efficiency it will locate at h .
These arguments regarding the lack of optimality in firm location
behaviour also extend to the issue of firm re -location. The relationship
between marginal location change and the profitability of the firm in
these areas is given by the differences in the slopes of the spatial revenue
and spatial cost functions as location changes. In the spatial margins of
profitability in which the slopes of the spatial revenue and spatial cost
functions are very shallow, the marginal benefit of relocation will be very
low. Therefore, in the presence of high relocation costs the firm will not
move to a superior location even if it knows which alternative is superior.
In conditions of imperfect information, bounded rationality, conflicting
goals, and significant relocation costs, the behavioural approach would
argue that once a firm has chosen a location, it will tend to maintain it
as long as profits are positive, and rarely use relocation as a competitive
weapon. In particular, firms are unlikely to relocate in response to small
variations in factor prices or market revenues. Nor are firms likely to
relocate frequently, as has already been observed earlier. The basic reason
for this is that in environments of limited information, the incurring of sig-
nificant relocation costs will engender significant risks for the firm, which
will therefore be unwilling to incur such costs unless it is very confident
regarding the superiority of the alternative location. Rather the firm will
attempt to undertake locational adjustment by reorganizing the resource
allocations and activities between its current set of existing plants, as this
type of reorganization within multiplant activities is often less costly to
the firm than is the closing and relocation of a plant. This behaviour is
very common amongst the multiplant organizational structures which are
typical of MNEs. On the other hand, where relocation costs are very low,
the firm will readily take advantage of spatial revenue and cost differences
and will easily be able to adopt relocation as a competitive strategy.
At this point there are several issues we can raise regarding the relation-
ship between rationality and optimality in terms of location behaviour.
First, the logic of corporate multiplant locational adjustment still needs to
be guided by the same cost and revenue considerations underpinning loca-
tion theory. As such, our location theory arguments are still valid in terms
of explaining where a firm should locate investment and activities in order
to ensure high rates of return on the capital it invests. Firms whose loca-
tional adjustment processes follow the logic of location theory will achieve
locational adjustment outcomes which are superior to those which do not.
Second, the cautiousness which some firms exhibit in terms of relocation
issues will depend on the level of sunk costs which would be incurred in
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