On the location of new facilities for chain expansion under delivered pricing
Abstract
We study the problem of locating new facilities for one expanding chain which competes for demand in spatially separated markets where all competing chains use delivered pricing. A new network location model is formulated for profit maximization of the expanding chain assuming that equilibrium prices are set in each market. The cannibalization effect caused by the entrance of the new facilities is integrated in the objective function as a cost to be paid by the expanding chain to the cannibalized facilities. It is shown that the profit of the chain is maximized by locating the new facilities in a set of points which are nodes or iso-marginal delivered cost points (points on the network from which the marginal delivered cost equals the minimum marginal delivered cost from the existing facilities owned by the expanding chain). Then the location problem is reduced to a discrete optimization problem which is formulated as a mixed integer linear program. A sensitivity analysis respect to both the number of new facilities and the cannibalization cost is shown by using an illustrative example with data of the region of Murcia (Spain). Some conclusions are presented.Download Info
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Bibliographic Info
Article provided by Elsevier in its journal Omega.
Volume (Year): 40 (2012)
Issue (Month): 2 (April)
Pages: 149-158
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Related research
Keywords: Location Optimization Sensitivity analysis;References
References listed on IDEASPlease report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Partovi, Fariborz Y., 2006. "An analytic model for locating facilities strategically," Omega, Elsevier, vol. 34(1), pages 41-55, January.
- ReVelle, Charles & Murray, Alan T. & Serra, Daniel, 2007. "Location models for ceding market share and shrinking services," Omega, Elsevier, vol. 35(5), pages 533-540, October.
- Aboolian, Robert & Berman, Oded & Krass, Dmitry, 2007. "Competitive facility location and design problem," European Journal of Operational Research, Elsevier, vol. 182(1), pages 40-62, October.
- Fernandez, Pascual & Pelegrin, Blas & Garcia Perez, Maria Dolores & Peeters, Peter H., 2007. "A discrete long-term location-price problem under the assumption of discriminatory pricing: Formulations and parametric analysis," European Journal of Operational Research, Elsevier, vol. 179(3), pages 1050-1062, June.
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