Geography Reference
In-Depth Information
becomes advantageous for the firm to serve market point
M
5
, rather than
M
3
. This is because
M
5
is nearer to
N
than
M
3
, and (
p
5
−
t
5
d
5
).(
p
3
−
t
3
d
3
),
so the firm will be able to make a greater profit from selling automobiles
to market
M
5
than to market
M
3
. One option is for the firm to simply
switch markets completely from
M
3
to
M
5
. Alternatively, it could decide to
supply both markets
M
3
to
M
5
at the same time, under which conditions it
may be that a new Weber optimum location of
P
arises, in which the firm
at
P
buys from two supplier locations
S
4
and
S
2
, and sells at two market
locations,
M
3
and
M
5
. More complex spatial arrangements are obviously
also possible. For example, in order to guarantee sufficient supplies of
steel inputs for the newly expanded automobile market of (
M
3
1
M
5
), the
firm may decide to continue to purchase steel from both
S
1
and
S
4
, as well
as purchasing plastics from
S
2
. Now we have a Weber location-production
problem with
S
1
,
S
2
,
M
3
,
S
4
and
M
5
as spatial reference points. Once again,
this will move the Weber optimum away from point
P
.
The point here is that location changes in response to location-specific
factor price changes also allow firms to take advantage of different input
and output spatial arrangements which were previously not possible. As
such, location behaviour is very rarely a one-shot phenomenon. Rather,
this analysis suggests that location behaviour is generally a dynamic process
by which firms make incremental adjustments over time to both their pro-
duction locations and also their input supply and output market locations.
Note that this type of dynamic process in which both the input sources
employed and the output markets targeted are continually adjusted over
time was triggered by a single initial relocation from
K
* to
L
, that opened
up possibilities for the firm to reconfigure its network of input supply and
output market points, each change implying a new optimum location.
Moreover, we also know that each new optimum locational arrangement
will also be associated with a unique set of equilibrium local factor input
prices which would render the firm indifferent between locations. If for
whatever reason the differences in local factor prices adjust over time by a
greater extent than the equilibrium wage gradient requires, then the firm
relocation will once again be triggered, which itself will engender further
induced changes in the input, output and location behaviour of firms. In
the common situations where the firm is an intermediate goods producer
such that both output market and input supply points are actually also
other supplier and customer firms, then changes in local factor prices may
cause these supplier and customer firms to relocate. What we see therefore
is that the location process becomes a
dynamic process
in which firms are
required to continuously re-assess the appropriateness of their location.
However, observation also tells us that firms in reality do not change
their production locations very frequently and probably not nearly as
