JOURNAL OF URBAN ECONOMICS 7, 337-347 (1980) The Block Metric and the Law of Markets B. CURTIS EATON’ Department of Economics, Universi@ of British Columbia, Vancouver, British Columbia V6T I W5, CamA AND RICHARD G. LIPSEY Department of Economics, Queen’s Uniwrsi@, Kingston, Ontario, K7L 3N6, Canaak Received November 29, 1977; revised March 2, 1978 The “Law of Markets” as originally stated by Fetter and amended by Hyson and Hyson is based on the assumption that the transportation of goods is along a line segment from firm to customer. In many situations the assumption that transporta- tion is along a block-like network of roads is a better approximation of reality. In this paper we establish the “law of markets” appropriate to the block metric. We discover that with such a metric there exist significant discontinuities in a firm5 demand functions and we argue that these discontinuities have important implica- tions for the types of competitive strategies open to firms. In 1924 Fetter stated his “Law of Markets” [3, p. 5251: The boundary line between the territories tributary to two geographically compet- ing markets for like goods is a hyperbolic curve. At each point on this line the difference between freights from the two markets is just equal to the difference between the market prices, whereas on either side of this line the freight difference and the price difference are unequal. The relation of prices in the two markets determine the location of the boundary line: the lower the relative price the larger the tributary area. Fetter’s law clearly deals with the delivery of goods from plant to customers directly along a straight line; distance between two points is measured by the Euclidean metric. The Euclidean metric is appropriate for situations in which a few producers are spread over the whole nation and the vicissitudes of the highway or rail network can be ignored so that, to a good approximation, transportation from point to point is along a straight line. However, in many rural areas and most cities transportation is along a network of roads which is closely approximated by a block-like grid and the Euclidean metric is not appropriate. In these circumstances the correct ‘Author to whom correspondence should be addressed. 337 0094-l 190/80/030337- 11802.00/0 Copyrisht Q 1980 by Academic Prem, Inc. Au ligbu of re$mduction in my form leaervd.