Supply and Demand
Transport supply is generally expressed by Aij; the transport supply between location i and j. Indirectly it combines modal supply, the capacity of a mode to support traffic, and intermodal supply, the capacity to transship traffic from one mode to another. For instance, air transport supply between two cities must jointly consider the capacity of the airports as well as the capacity of air corridors. The supply of some transport modes, such as road transport, is more contingent upon the modal capacity while the supply of other modes, such as maritime and air transport, is more dependent upon intermodal capacity.
Transport demand is represented by Tij; the transport demand between location i and j. The potential transport demand is the amount of traffic if transport costs were negligible or if there were almost no constraints on mobility. The transport capacity would be unlimited. The realized transport demand, a subset of the potential transport demand, is the traffic that actually takes place, namely in function of the transport costs between the origins and the destinations. The realized demand is therefore an outcome of the constraints imposed by the existing transport supply.
The location of activities encompasses the concepts of the site and its situation. The site relates to the characteristics of a specific location while the situation concerns the relationships of a location in relation to other locations. Historically, specific sites suitable for defense or commerce have been essential factors in the location of cities. This perspective can further be expanded by three interdependent factors in the global location of cities:
- The city is located at a load breakpoint where cargoes are moved from one mode to the other, connecting two or more systems of circulation. This is particularly the case for port cities, which explains, for a large part, the coastal location of most of the world’s largest cities.
- The city is located in proximity to a major (or several) resource and serves as a convenient point of collection, distribution, and transformation. The resource can exist at a specific location (e.g. a mine) or encompassing an area (e.g. agriculture).
- The city serves a hinterland in providing goods and services, with its size a function of the density.
Transportation has four main locational influences, including costs, agglomeration, density, and co-location. At best, the following observations concerning transportation modes and terminals and their importance as locations can be made:
- Ports and airports. Main port and airport facilities, particularly the networks they support, have been important factors in the reduction of transportation costs, particularly over long distances. The location and the level of activity of ports and airports are reflective of global trade patterns. These facilities are also important drivers of co-location of related activities, particularly for ports since inland distribution costs tend to be higher.
- Roads and railroads. Road and rail infrastructures provide a structuring and convergence effect that varies according to the level of accessibility and density. In addition to reduce transport costs, efficient roads and railways support higher density levels of economic activities. For rail transport, terminals also have an important co-location effect with the setting of inland ports.
- They provide no specific local influence, but the quality of regional and national telecommunication systems tends to ease transactions. Telecommunication systems benefit from higher densities since it becomes more practical to service a customer base. With the ongoing digitalization of transportation, information technologies impact mobility in numerous ways, mainly by allowing the providers and consumers of transportation services to interact better.
Market Area Analysis
Market Size and Shape
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.
A market area is a surface over which a demand or supply offered at a specific location is expressed. For a factory, it includes the areas where its products are shipped; for a retail store, it is the tributary area from which it draws its customers.
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:
- Market threshold. Minimum demand necessary to support an economic activity such as a service. Since each demand has a distinct location, a threshold has a direct spatial dimension. The size of a market has a direct relationship with its threshold.
- Market range. The maximum distance each unit of demand is willing to travel to reach a service or the maximum distance a product can be shipped to a customer. The range is a function of transport costs, time, or convenience in view of intervening opportunities. To be profitable, a market must have a range higher than its threshold.
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:
- While goods and services that are necessities (such as food) do not see much fluctuation in the demand, the demand for items deemed of lesser utility (even frivolous) would vary according to income and economic cycles. There are important differences between discretionary and non-discretionary spending.
- Income level. Income, especially disposable income, is directly proportional to consumption. A population with a high-income level has much more purchasing power than a population with a low income.
- Involves an increase in the money supply in relation to the availability of assets, commodities, goods, and services. Although it directly influences prices, inflation is outside the supply-demand relationship and decreases the purchasing power, if wages do not increase accordingly.
- Sale and value-added taxes can have an inhibiting effect on the sales of goods and services as they add to the production costs and claim a share of consumer’s income.
- The quantity of capital available in savings can provide the potential to acquire consumption goods. Also, people may restrain from consuming if saving is a priority, namely in periods of economic hardship. The wide availability of credit in a fiat currency system has considerably skewed the relationships between savings and consumption as it promotes current consumption levels but at the expense of future consumption.
Competition over Market Areas
Competition 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:
- Market coverage. Activities offering the same service will occupy locations in view to offer goods or services to the whole area. This aspect is well explained by the central place theory and applies for sectors where spatial market saturation is a growth strategy (convenience stores, fast food, coffee shops, etc.). The range of each location is a function of customer density, income distribution, transport costs and the location of other competitors.
- Range expansion. Existing locations try to expand their ranges in order to attract more customers. Economies of scale resulting in larger retail activities are a trend in that direction, namely the emergence of shopping malls. Taken individually, each store would have a limited range. However, as a group, they tend to attract additional customers from wider ranges. First, a complementarity of goods or services is offered. A customer would thus find it convenient to be able to buy clothes, shoes and personal care products at the same location. Second, a diversity of similar goods or services is offered (more choice) even if they compete with one another. Third, other related amenities are provided such as safety, food, indoor walking space, entertainment, and parking space.