The theories for clustering in Geo Economics
Weber
Losch
Hotelling
Christaller
Von Thunen
Assumptions
Least costs theory
Focuses on minimazing costs, so it's supply driven
The only way of minimizing costs is through minimazing transport costs
Assumptions
Transport system uniform
Markets are at fixed points and demand is infinite.
Ubiquitous natural resources
Isotropic plain
Labour is inmobile at fixed points and of different wages
Central Place Theory
Total Transport costs = Procurement costs+distribution costs
Material Index = Raw material/Finished product
Under which conditions a
central place will pop up
M.I >1 Lossing / M.I.<1 Gaining / M.I.= 0 Footloose
Monetary weight. The cost for transporting a good
Weight x Transport cost
PC and DC= W x T x distance
Krugman
Different transport rates and combination of them
Profit maximization
1909
1954
Industry will be located within the least cost of production location.
Conditions for equilibrium
It's demand driven, how do we maximize profits?
Monopolies disappear
Production/supply areas must be as small as possible
number of firms is enough to cover market
Borders between market areas must be iso-price for consumers (hexagonal)
Location of firms as advantegous as possible
"Assumptions"
Price elasticity of demand is negative and finite
Scaterred consumers
The higher the prices, the lower the demand.
There is a negative demand between distance (more distance= more price) and the demand
So what we seek is to place ourselves as close to the market, and reduce the transport costs. Our final price will be P+Transport costs x Distance
Lowering price
1929
No price competition (elasticity of demand is zero)
Each agent assumes other agents' choices as given
Homogenous product
Varignon Frame
Profit maximization demand driven
The Ice-Cream trucks and beachexample
Competition for demand between companies will drive them to a cluster in the middle
The peripheries will suffer having less options, or costlier than the central place.
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1826
New Economical Geography approach
Assumnptions
Infinite homogenous
plain
One Central Place
Transport cost (t) is constant, varies within goods
Infinite demand
quantity per land (x) is fixed production cost (c) is fixed
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1933
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Arthur
Increasing returns theory
Starting historical advantages of one tech (A), will monopolize the market in the long run and displace the competence (B), even if B will be more profitable in the future
1989
A will lock-in B, not even giving them the opportunity to start
Solution is public policy intervention. But if it's not done before lock-in, it's done for
Informational cascades
Occurs when choosing a region is optimal for an individual having observed the previous course of action of his predecessors, without regard to information from other sources.
Epidemic model (Grilliches)
The bigger the number of people that innovated, the faster the spread, and the smaller the fraction of potential users in the long-run.
