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Estimates of Fixed Costs and the Sizes of Market Areas in the United States

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  • M L Greenhut

    (Department of Economics, College of Liberal Arts, Texas A & M University, College Station, Texas 77843, USA)

  • M-J Hwang

    (Department of Economics and Regional Research Institute, West Virginia University, Morgantown, West Virginia 26506, USA)

Abstract

This paper extends Löschian theory towards the end of claiming its applicability to heterogeneous space economies as well as to the homogeneous space economy. It then tests the theory by examining the relationships between fixed costs and market-area sizes. The result is an empirical demonstration that the level of fixed costs in the United States is so low that market areas too large to be approximated by the optimal hexagonal market-area shape are not likely to be associated with competition in free-enterprise countries. It is in fact indicated that competitive firms sell over comparatively small market areas. The related conclusion follows that there is nothing in market-area studies (empirical or theoretical) that would imply inefficiency or failure to maximize consumer wants.

Suggested Citation

  • M L Greenhut & M-J Hwang, 1979. "Estimates of Fixed Costs and the Sizes of Market Areas in the United States," Environment and Planning A, , vol. 11(9), pages 993-1009, September.
    • Handle: RePEc:sae:envira:v:11:y:1979:i:9:p:993-1009
    DOI: 10.1068/a110993
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