Skip to content
Show
Each economic activity has a location, but the various demands (raw materials, labor, parts, services, etc.) and flows each location generates also have a spatial dimension called a market area.
Transportation is particularly important in market area analysis because it impacts the location of economic activities as well as their accessibility. The size of a market area is a function of its threshold and range:
In the case of a single market area, its shape in an isotropic plain is a simple concentric circle having the market range as the radius. Since the purpose of commercial activities is to service all the available demand, when possible, and that the range of many activities is limited, more than one location is required to service an area. For such a purpose, a hexagonal-shaped structure of market areas represents the optimal market shape under a condition of isotropy. This shape can be modified by non-isotropic conditions, mainly related to variations in density and accessibility.
2. Economic Definition of a Market AreaA market depends on the relationships between supply and demand. It acts as a price-fixing mechanism for goods and services. Demand is the quantity of a good or service that consumers are willing to buy at a given price. It is high if the price of a commodity is low in relation to its usefulness, while in the opposite situation – a high price – demand is low. Outside market price, demand can generally be influenced by the following factors:
Supply is the number of goods or services that firms or individuals are able to produce taking account of a selling price. Outside price, supply can generally be influenced by the following factors:
According to the market principle, supply and demand are determined by the price, which is an equilibrium between both. It is often called the equilibrium price or market price. This price is a compromise between the desire of firms to sell their goods and services at the highest price possible and the desire of consumers to buy goods and services at the lowest possible price. For many economists, the market is a point where goods and services are exchanged and do not have a specific location since it is simply an abstraction of the relationships between supply and demand. It is important to underline that since most of the time consumers must move in order to acquire a good or receive a service. The producer must also ship a commodity to a location where the consumer can buy it; a store or a residence (in the case of online shopping). The concept of distance must thus be considered concomitantly with the concept of the market. In those conditions, the real price includes the market price plus the transport price from the market to the location of final consumption. 3. Competition over Market AreasCompetition involves similar activities trying to attract customers from a similar pool. Although the core foundation of competition for a comparable good or service is the price, there are several spatial strategies that impact the price element. The two most common are:
Developing operational market area models has been the object of numerous approaches. Initial work was undertaken in the first half of the 20th century focused on simple market competition (Hotelling’s law), which was the foundation of market area analysis by considering factors such as retail location and distance decay. Later, factors such as market size were taken into consideration (Reilly’s law), permitting to build complex market area representations. Since market areas are often non-monopolistic and subject to customer preferences, this factor was included with market areas becoming ranges of probabilities that customers will attend specific locations (Huff’s law). Although market areas are particularly relevant for retail analysis, the methodology also applies to time-dependent activities, such as freight distribution since distribution centers are located to service-specific national or regional markets.
The emergence of e-commerce has substantially modified competition over market areas through a substitution from a retail distance decay function to parcel distribution capabilities. Market accessibility remains fundamental, but how this market is serviced changes. When customers travel to a store, proximity to population clusters is fundamental. The market areas are structured by the combination of mobility options available, such as walking, public transit, and the automobile. When parcels are delivered, proximity to distribution capabilities becomes the most important factor. Passenger mobility ceases to be a relevant factor, while freight mobility becomes the main impedance factor related to delivery time. 4. Geographic Information Systems and Market Areas AnalysisGeographic Information Systems (GIS) have become fundamental tools to evaluate market areas, especially in retailing. With basic data, such as a list of customers and their addresses (or ZIP codes) it is relatively simple to evaluate market areas with a reasonable level of accuracy, a task that would have been much more complex beforehand. With GIS, market area analysis left the realm of abstraction to become a practical tool used by retailers and service providers in complex real-world situations. In the spatial representation of a GIS, the market area is a polygon that can be measured and used to perform operations such as intersection (zones of spatial competition) or union (area serviced). Among the major methods a GIS can be used to evaluate market areas are:
Related TopicsBibliography
|