Geography Reference
In-Depth Information
On the other hand, it is also possible to argue that input and output
prices are often not independent of distance costs
t
1
,
t
2
,
t
3
. Large firms
consuming large quantities of inputs and producing large quantities of
outputs are often able to achieve economies of scale in transportation
either via their own fleet management practices, or by negotiating favour-
able deals with haulage companies. As such, as the firms become larger
their transport rates may fall. Under these conditions, the Weber model's
optimum location outcomes become much more complex and depend
on the relative changes in the transportation rates of the inputs and the
outputs. In general though, we can still conclude that the firm will tend
to move away from the shipment direction where the transport costs have
fallen the most in order to economize on the relatively higher transport
costs.
In the most complex situations where both the production coeffi-
cients and the transport rates are changing as output expands, the actual
optimum location will depend on the relative directions and rates of
change of these various features.
3.2.2
The Weber Location-Production Model: Varying Input Factor
Prices
So far in our location theory models we have been considering simply
the case of a firm which has a single production establishment. We have
also been focusing on the case where a firm is producing physical tangible
goods and merchandise. We will keep these assumptions intact during
the following sections in order to keep the explanations of the theoretical
models as simple as possible. In the final sections of this chapter we will
then start to relax these assumptions and allow for the case of firms with
multiple establishments, as is typical of MNEs, and also allow for firms
producing intangible products and services.
The locational analysis so far has proceeded on the assumption that
labour and land prices are identical across all locations, whereas we know
that in reality the prices of production factors such as labour and land can
vary significantly over space. Yet, it is very straightforward to employ the
Weber-type of approach in order to consider how factor price variations
across space will affect the location behaviour of the firm. In order to
make the models simple, for the moment we will also assume that the costs
of relocating a firm's establishment are zero.
Here we can once again assume that the firm is still consuming inputs
from
S
1
and
S
2
and producing an output for the market at
M
3
. From the
above discussion, we know that if all factor prices are equal across space
the Weber optimum location
K
*, which is the minimum transport cost
