Central Place Theory

Central Place Theory

The process of exchanging something of value between two parties (e.g., producers and suppliers, producers and consumers, producers and distributors, or distributors and consumers) that are distant from each other often triggers transportation activities. Although this process can take place anywhere in between the respective locations of those two parties, its location can either boost or undermine transportation activities. For example, if produced goods are to be exchanged at the location (i.e., a trading area or a marketplace) further away from consumer population centers, producers will lose their consumer-drawing power due to larger spatial gaps between them and their consumers and thus transportation activities from consumers and producers will be limited.

 However, if that remote location of the marketplace can offer a diverse range of product assortments due to its scale (size), it may still draw consumers from longer distances. In other words, the location and size of the trading area can dictate transportation activities. This concept can be explained by the Central Place Theory. It helps explain reasons why people gather together in cities and towns to exchange their goods, services, and ideas. Extending its theory, it can also explain why distribution centers and retail establishments are located in certain areas and how people get engaged in transportation activities to reach those specific trading areas.

 From the producer’s perspective, the producer will gravitate toward the trading area where he or she can find a larger number of potential consumers with higher disposable incomes. Because travel distance to such a trading area can create spatial gaps and thus increase the cost of travel, distance will also affect the producer’s decision to trade his or her products and services in that trading area. From the consumer’s perspective, the consumer will be drawn into the trading area where he or she can find particular products that he or she wants or has access to a wide variety of products to choose from. Despite the availability of products and services that the consumer wants, distance for shopping trips to the trading area can be an obstacle because it will increase his or her cost of travel and thus increase the total cost of a product.