A note on Launhardt’s market area analysis

This note examines Launhardt’s analysis of market area in Chapter 27 of his 1885 book. Under the assumption of quadratic utility function, we derive the individual spatial demand and use this spatial demand curve to show the formation of a circular market. We further show that the size of the market area is inversely proportional to the square of the freight rate without the constant marginal utility assumption. Backhaus recently claimed that the application of this Launhardt’s market area rule requires the constant marginal utility assumption. We show that Backhaus’s assertion is incorrect.