In time, the successful attempts of competitors to locate at the profitmaximizing site will so shrink the relative demand as to cut profits, thereby leading eventually to the state of locational equilibrium. Such equilibrium would find (1) marginal revenues equated to marginal costs, (2) average revenue tangent to average costs, and (3) concentrations and scatterings of plants in such order that relocation of any one plant would occasion losses.3 When applied to SPS, this theory has important implications. For example, partly due to the availability of hydroelectric power the Pacific northwest has attained a high concentration of aluminum manufacturing and aircraft plants that use this material. The source of electrical power for the aluminum industry is threatened by 1988. Hence, the siting of rectennae in that region would be consistent with Greenhut's theory. This issue will be explored later. 2.1.5 Spatial General Equilibrium The first comprehensive theory of general equilibrium using a spatial concept was developed by Walter Isard, in Location and Space Economy. 1 Isard attaches great importance to the fusion of location theory with other branches of economic theory. Isard attempts this through application of substitution principles. The basic idea is that a general theory of location can be developed in a manner similar to other aspects of economic theory by applying the principle of substitution to the way an entrepreneur combines expenditure on the various factors of production in making his choice of location. Isard classified location factors into three groups. The first group includes transport and certain other transfer costs. Because these costs vary regularly with distance, they provide a relevant set of reference points — whether raw materials, service, or market points — that establish systematic variations of these costs over space. A second group of factors comprises costs associated with labor, energy, taxes, water, insurance, climate, and a number of other items. Although these items possess a relatively stable geographic cost pattern, they do not vary systematically with distance as do transport costs. By contrast, these costs vary independently of distance and direction. The third group includes those elements that cause agglomeration and deglomeration economies. The agglomeration forces include economies of scale, as well as the localization and/or urbanization of economies. The deglomerative forces include diseconomies within a firm, the rise of rents and costs of urban services, and the rise in the cost of food as the rise in the size of population settlement compels the
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