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You know the answer. But let me point out the specific problem: it is completely unclear what is being
maximized when a firm chooses a point of maximum market potential. Indeed, if you think about it at
all you realize that the whole idea of computing market potential in the way that I have described must
implicitly involve some strong beliefs about market structure. Firms cannot exhibit constant returns to
scale otherwise one would simply establish a facility to serve every market, and there would be no
reason to compute a single market potential surface for the whole of the United States or the European
Union. Nor can they be producing goods that are perfect substitutes; there would be sharply defined
market areas after the manner of Lösch, not smooth potential surfaces with no edges. Thus the market
potential approach seems to have an implicit monopolistic competition story lurking underneath but that
story is entirely implicit, and had to be so, since monopolistic competition was not something people
knew how to model during the heyday of the market potential approach.
Cumulative Causation
One immediately obvious implication of the market potential analysis is the possibility of circularity.
Firms want to locate where market potential is high, that is, near large markets. But markets will tend to
be large where lots of firms locate. So one is led naturally to a consideration of the possibility of selfreinforcing
regional growth or decline.
I am not entirely clear on how well geographers understood this point. The pioneering paper by Harris
(1954) certainly pointed out that regions with high market potential,
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