Market areas and competing firms: History in perspective

Abstract

Location theory has traditionally been based on equilibrium concepts. Dynamics have been introduced mainly to ascertain whether there are paths leading to the equilibrium states. The modeling of dynamics has been very simple yet involving both locational changes and price changes. Notions of market areas and competition between firms have been at the core of location analysis. Although the classical location theory was developed in a regional context, the models have found a number of recent applications in urban analysis where interdependencies and dynamics are central elements. The theoretical contributions of Hotelling, Hoover, and Palander form cornerstones for the discussion in the current chapter. In this chapter, we will mainly dwell in the Hotelling tradition and use the theories of Hoover and Palander as introductory and complementary inputs. The chapter presents a series of behavioral models in the spirit of the classical Hotelling location game involving the spatial location of suppliers (sellers) and consumers (customers) in an urban context. The models have been established within a cellular automata framework. The location models studied assume fixed prices. The location of sellers is determined by the relative accessibility to customers and the competition between sellers for customers. Using the techniques of cellular automata, a set of simulations will be performed to discuss equilibrium states of customer-seller systems. The discussion will serve to illustrate some elements of location theory under different levels of complexity.