Models of Industry Comparison Doc HaoYang

Assumption the owner of plant would try to Meltzer three categories of variable costs Transportation, Labor, and Agglomeration. Transportation Is the most important part because It decides the potential lowest cost of transporting raw materials as well as final products. Labor costs money and reduces profits so that owner will seek cheap labor forces(e. G China). Sharing information or technologies between different companies will boost production, maximize profits. The competition is also catalyst for industrial innovation.

Location Interdependence Theory (Wheedling) The location of industries can’t be understood w/o reference to the location of other industries of like kind; two similar vendors would locate next to each other In the middle of a market area to maximize profit. It suggests competitors, In trying to maximize sales, will seek to constrain each other’s territory as much as possible which will therefore lead them to locate adjacent to one another In the middle of their collective customer base. Profit Minimization Theory (Loach) Firms will identify a zone of profitability. Her businesses can come in and change the configuration of that zone. Agglomeration can give the entire area a competitive advantage. Often considered the most important market area analysis. The correct location of a firm lies where the net profit is greatest (sales income – production costs). A number of deferent points may appear as optimal due to the substitution principle (an increase In one cost (e. G. , transportation) offset by a decrease in another cost (e. G. , labor)). These series of points, connected, mark the Spatial Margin of Profitability (not a single point as Weber had contended).

Strength and Weakness All of Weeper’s theory is based Laissez Fairer, where a total free market without any government influence. Of course, convenient transportation, cheap labors, and corporation are important factors of industries, but government influence is bigger. Excise tax, quota, tariff, etc, even though a company can achieve all of Weeper’s theory, a strong company under total governmental dominance will collapse. Whittling’s model works for every business, because choosing a good location determines the many future; However, the results are sensitive to the cost assumption when applied to commerce.

It Is Just a theory, difficult to apply to real world. In addition to Loch’s model, When a firm applies profit minimization, It Is basically saying that Its primary focus Is on profits, and it will use Its resources solely to get the biggest profits possible, regardless of the consequences or the risk Involved. Profit minimization is a generally short-term concept. Pursuing a profit minimization singular strategy meant to maximize its profits that it loses everything if the market takes a sudden turn.