What determines a city’s size and the area of its economic impact? What is the connection between ‘Hassle-distance’ and the theoretical gravity model I’ve demonstrated earlier? I want to elaborate more on the Suppression Zone of the city and I’ll tie it all together here.
For those who haven’t read the first articles, you can run through these or… skip to the story below
Spatial market failure is easily illustrated in the “The ice cream vendors” model – This model describes a situation in which the equilibrium, the place where the market aspires, creates a accumulation of sellers at a single point, although there is no profit made by it, Neither for consumers nor for sellers.
The mathematical model I have developed, the gravitation model, shows how equilibrium is reached in a large area, with multiple sellers and multiple customers, and it demonstrates that the main factor for agglomeration, for creating a city (the glorious market failure from which no one really benefits) is the fact that people are willing to travel to obtain products / services.
The model presents three distinct areas, the Gravitation Center, the Suppression Zone and the Leapfrogging Circle.
So…in this article I want to focus on the Suppression Zone and explain what determines its size.
A short story as a brief recap
Imagine five small villages in Italy, 100 years ago. Small houses, mountain views, blue sky and … pizzerias. One in each village. In our villages there are only pedestrians, so the distance between the villages is a one hour walk. In this state of affairs, even if one of the pizzerias is better and cheaper, no one would be willing to walk an hour back and forth just for lunch. The fact that the distance is long allows each village to be independent, and for every single one of the small pizzerias to be profitable.
Fast Forward 60 years and here comes the car, the distance between the villages is shortened to a five minute drive. The mental cost involved in traveling has declined. In terms of Hassle-distance, people hardly care where they eat. From that moment on, all five pizzerias compete with each other, and the one with with the slight advantage will expand. The advantage can be price, convenient parking, taste, a funny housekeeper … anything.
Once that restaurant has expanded, if ever so slightly, it is already considered “the big one” and although immediately all other pizzerias will copy it, it has the advantage of size and the economies of scale (We will not go into the whole theoretical model again). Every year more and more customers will prefer “the big one” and it will continue to expand and attract more customers until all the people from all five villages eat in it and all the other restaurants are shut down. In the new equilibrium that will be created, it will not be possible to open a small pizzeria in any of the villages since the competition with “the big one” will be too fierce. The “big” restaurant is forcing an economic suppression zone around it.
In other words, transportation and major changes to ‘Hassle-distance’ are what created the new city and dried up the villages.
But why is this a market failure?
Because no one really earned anything. Note that:
- The number of meals has not changed, meaning that no economic activity was created.
- One economic center was created without any competition around it. Which results in one economical active city and four sleepy suburbs.
- No one changed their place of residence but the trip for dinner is now a constraint rather than a choice. You MUST go to the city.
Let’s simplify the example and see it as a graph with only two villages. Originally, both villages have a pizzeria. The area of influence of each extends to the village itself as customers are coming in from the entire village. Things are stable, we are in an economic equilibrium (Figure 1).
Now, when cars are introduced, the economic zone of the pizzerias is expanded and they overlap one another (Figure 2).
According to the gravity model, the chances for remaining balanced in this situation are slim and a city center will be created. Center that will attract all the activity and dry out the other villages. The model predicts this new equilibrium (Figure 3):
So what determines the size of the center’s Suppression Zone?
It is the Hassle-distance consumers are willing to go through. In the example of the pizzerias it was a literal distance but it is not really expressed as meters and kilometers.
Hassle-distance is an economic concept affected by psychological factors. It changes for each person and his preferences, the product he is looking to buy and the obstacles he expects on his way to get it.
The Suppression Zone slope is determined by the Hassle-distance (see figure 3 above). Very low Hassle-distance will create very large Suppression Zone and vice versa.
A background story about Superman and things you already know about urban changes
What we just saw here was a change in the balance created by changes in transportation. Let’s examine other factors that affect Hassle-distance and change the city by it.
Changing the road
Imagine two cities, one big – Metropolis, and the other small – Smallville. A river runs between the two cities and it can only be crossed by a bridge that is 50 kilometers away from them.
A new bridge will be built that will connect both cities. The mayor of Smallville argues that it will enable the residents of Smallville to earn more as jobs in Metropolis are more profitable and varied.
But what about the businesses in Smallville?
For example, in both cities we find an iPhone repair shop. This service’s Hassle-distance is about an hour drive, and with the opening of the bridge, the two stores are suddenly in immediate competition, which of them has an advantage? The one that is in Metropolis of course.
The chances for big city folks will travel to Smallville to repair their iPhones are none. On the other hand, quite a few of the Smallville residents that until now have repaired their devices locally will definitely go to Metropolis now to do so in the big store.
The Suppression Zone of Metropolis has being extended to cover Smallville and can now smother it.
In other words, closing the geographical gap between a city and it’s periphery will inevitably weaken the business in the periphery and strengthen the big city.
Changing the environment
Hassle-distance is not just distance. Let’s continue with our story and add a toll to the bridge between the cities. Suddenly, anyone who wants to get to the Metropolis has to pay $ 20. The Hassle-distance between Metropolis and Smallville has increased due to tax.
The parking lot adjacent to the iPhone service store in Metropolis has become crowded, By foot. Distance of hassle increased due to overcrowding, traffic jams or interference. It does not always have parking space and sometimes you will have to park around the corner and walk 3 minutes on foot. Hassle-distance increased due to overcrowding, traffic jams or other interference.
…and it’s winter, it’s raining, the roads are slippery … Hassle-distance has increased due to weather conditions.
All of a sudden, fixing iPhones at the local store pays off again for Smallville residents. We have changed the Hassle-distance not by changing the road or the means of transportation, but rather by other conditions that affect it. The Suppression Zone of Metropolis has been narrowed and lifted from Smallville (for iPhones repair services that is).
There are many other factors that affect a product or service Hassle-distance. The main takeaway message is that Hassle-distance determines the slope of the Suppression Zone and its size.
Your examples suck and there is nothing new in what you are saying!
God, I really hope you guys are thinking just that right now.
Yes, my examples are simple and familiar, but for some reason economists and urban planners ignore them. Everything I wrote can be understood only if you really think, as I, that the city is a market failure. In other words, it only attracts economic activities but does not create any. It sounds silly but quite a few people in the field think that the city is an economic engine and as such, that it adds value.
To think that the city creates economic activity makes a dangerous argument. It leads to certain decisions. For example, “if the city adds value, why would it harm businesses in Smallville when we build the fast bridge to Metropolis?”
But we know for a fact, that it does harm those businesses.
Don’t take my word for it, look for these cases in your country. Economic centers, main streets that rose and fell when a new commercial center was opened. Comfortable and pleasant cities that became a wasteland. Behind these processes you will find bad political decisions and roads that have been paved without any understanding of the real economic impact they may create.
The size of the city depends on the size of its economic Suppression Zone and the number of residents in it.
Ok, we got it , cities are created when businesses create their Suppression Zone. It’s not that they actually produce more (the number of iPhone repairs remains the same if they are fixed in Smallville or Metropolis). What determines the size of the city is the number of consumers it has under its influence.
Think about primary education for example, it is a service for which we are prepared to travel only a short distance. That’s why we find a high school in Smallville as well. It is a service that requires daily commute and for most parents the need to drive the children to school is a high Hassle-distance.
Most of us are willing to pay only low Hassle-distance for products like cigarettes, bread, newspapers. Products with defined quality consumed frequently. We are willing to pay higher Hassle-distance on more expensive products – for a “good workplace” we will be ready to travel probably an hour and a half. For a great wedding dress we will be ready to travel five hours.
This means that the Suppression Zone the city center projects on cigarette supply or education is quite limited, while for workers, workplaces, iPhone repairs or wedding dress rental it is far wider.
I’ll leave you with this last thought – If you can kill Smallville`s city center by putting it in the economic grasp of Metropolis, what awaits your city, its main street, shops and businesses in 10 years… when your city will be covered by the Suppression Zone of the “city” of Amazon?
I’ll talk about it in the future and explain the economic model that drives that process. It is very simple but we may need Superman to help us with the repercussions.