Market Areas and Systems of Cities
This chapter explains a logical analysis that goes from the market area of a firm to city settlements and from city settlements to a hierarchical system of cities. One way to picture a market area for a spatial monopolist, such as our brewer, is to generate a quantity—distance function. The chapter explains that consumers are still evenly distributed about the market area. In long-run equilibrium, market area configurations must have three characteristics. First, there cannot be gaps in economic space. Caps indicate that potential consumers are not served. Second, in equilibrium, the market areas of the same level good cannot overlap. Finally, the market areas have to equal the threshold size market for the firm. The size of the market area that allows no excess profits is known as the threshold size market area. The market area population would need to grow to 9500 for an apparel store to subsist.