Scale Economies and Plant Vintage: Toward a Factory Classification

Abstract

Industrial location theory has concentrated upon the determination of the optimum location of new factories and has tended to neglect the process of adjustment by established factories to changing operating conditions [19]. Yet, as Townroe [21] has shown, the decision to construct a new plant represents but one of several policy strategies which may affect the spatial distribution of manufacturing activity. Other strategies include the expansion of existing factories, the take-over of competing factories as part of a rationalization scheme, and factory closure. The present work is concerned with the issue of factory survival, and is specifically directed toward industries in which there are strong potential internal economies of scale. Such industries frequently present the seeming paradox of the survival of small factories along with units operating at a much larger scale. Moses [11] has explored some of the spatial implications of economies of scale within the framework of location theory. Commencing with the least cost approach it has been shown that, since different scales of operation involve differing combinations of inputs, the pull of these input sources will vary with the scale of operation, resulting in the possibility of there being different optimum locations for differing sizes of factory. When spatial variation in demand is introduced the probability of there being a number of viable scale-location