IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v159y2015icp265-273.html
   My bibliography  Save this article

Designing a retail store network with strategic pricing in a competitive environment

Author

Listed:
  • Zhang, Yue

Abstract

This paper presents a location and pricing model for a retailer that sells a homogeneous product to maximize profit in a competitive environment. Specifically, the retailer is to locate a given number of stores and simultaneously to determine the mill price charged at each open store. We assume that mill price and travel cost are two main utility factors considered by customers, and adopt the multinomial logit model to express the flows of customers traveling to stores. The problem is formulated as a mixed integer nonlinear program. We develop a solution framework composed of two phases (location and pricing) to solve the problem. Given a set of open stores, three pricing heuristics are used to determine the optimal price at each open store. Three location heuristics are proposed to find the best set of open stores. Computational experiments suggest us to use a path-following approach provided in the literature for pricing and a tabu search procedure for location. We finally investigate an illustrative example and derive a number of managerial insights regarding location and pricing strategies.

Suggested Citation

  • Zhang, Yue, 2015. "Designing a retail store network with strategic pricing in a competitive environment," International Journal of Production Economics, Elsevier, vol. 159(C), pages 265-273.
    • Handle: RePEc:eee:proeco:v:159:y:2015:i:c:p:265-273
    DOI: 10.1016/j.ijpe.2014.09.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527314002916
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijpe.2014.09.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lederer, Phillip J & Hurter, Arthur P, Jr, 1986. "Competition of Firms: Discriminatory Pricing and Location," Econometrica, Econometric Society, vol. 54(3), pages 623-640, May.
    2. Hakimi, S. Louis, 1983. "On locating new facilities in a competitive environment," European Journal of Operational Research, Elsevier, vol. 12(1), pages 29-35, January.
    3. Donald Erlenkotter, 1977. "Facility Location with Price-Sensitive Demands: Private, Public, and Quasi-Public," Management Science, INFORMS, vol. 24(4), pages 378-386, December.
    4. Hassan Younies & H. A. Eiselt, 2011. "Sequential Location Models," International Series in Operations Research & Management Science, in: H. A. Eiselt & Vladimir Marianov (ed.), Foundations of Location Analysis, chapter 0, pages 163-178, Springer.
    5. María Pérez & Pascual Hernández & Blas Pelegrín, 2004. "On price competition in location-price models with spatially separated markets," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 12(2), pages 351-374, December.
    6. Zhang, Yue & Berman, Oded & Verter, Vedat, 2009. "Incorporating congestion in preventive healthcare facility network design," European Journal of Operational Research, Elsevier, vol. 198(3), pages 922-935, November.
    7. Dan Horsky & Paul Nelson, 1992. "New Brand Positioning and Pricing in an Oligopolistic Market," Marketing Science, INFORMS, vol. 11(2), pages 133-153.
    8. Abdullah Dasci & Gilbert Laporte, 2005. "A Continuous Model for Multistore Competitive Location," Operations Research, INFORMS, vol. 53(2), pages 263-280, April.
    9. Cyrus Chu, C. Y. & Lu, Huei-chung, 1998. "The multi-store location and pricing decisions of a spatial monopoly," Regional Science and Urban Economics, Elsevier, vol. 28(3), pages 255-281, May.
    10. LEDERER, Philip J. & THISSE, Jacques-François, 1990. "Competitive location on networks under delivered pricing," LIDAM Reprints CORE 893, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. 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.
    12. Pierre Hanjoul & Pierre Hansen & Dominique Peeters & Jacques-Francois Thisse, 1990. "Uncapacitated Plant Location Under Alternative Spatial Price Policies," Management Science, INFORMS, vol. 36(1), pages 41-57, January.
    13. repec:bla:jregsc:v:44:y:2004:i:3:p:489-515:2 is not listed on IDEAS
    14. Lin‐Ti Tan, 2001. "Spatial Pricing Policies Reconsidered: Monopoly Performance and Location," Journal of Regional Science, Wiley Blackwell, vol. 41(4), pages 601-615, November.
    15. Gregory Dobson & Uday S. Karmarkar, 1987. "Competitive Location on a Network," Operations Research, INFORMS, vol. 35(4), pages 565-574, August.
    16. Abdullah Dasci & Gilbert Laporte, 2004. "Location and Pricing Decisions of a MultiStore Monopoly in a Spatial Market," Journal of Regional Science, Wiley Blackwell, vol. 44(3), pages 489-515, August.
    17. Lüer-Villagra, Armin & Marianov, Vladimir, 2013. "A competitive hub location and pricing problem," European Journal of Operational Research, Elsevier, vol. 231(3), pages 734-744.
    18. David L. Huff, 1963. "A Probabilistic Analysis of Shopping Center Trade Areas," Land Economics, University of Wisconsin Press, vol. 39(1), pages 81-90.
    19. Haase, Knut & Müller, Sven, 2014. "A comparison of linear reformulations for multinomial logit choice probabilities in facility location models," European Journal of Operational Research, Elsevier, vol. 232(3), pages 689-691.
    20. repec:bla:jregsc:v:44:y:2004:i:3:p:489-515:1 is not listed on IDEAS
    21. Marianov, Vladimir & Rí­os, Miguel & Icaza, Manuel José, 2008. "Facility location for market capture when users rank facilities by shorter travel and waiting times," European Journal of Operational Research, Elsevier, vol. 191(1), pages 32-44, November.
    22. Kathrin Fischer, 2002. "Sequential Discrete p-Facility Models for Competitive Location Planning," Annals of Operations Research, Springer, vol. 111(1), pages 253-270, March.
    23. Benati, Stefano & Hansen, Pierre, 2002. "The maximum capture problem with random utilities: Problem formulation and algorithms," European Journal of Operational Research, Elsevier, vol. 143(3), pages 518-530, December.
    24. Hua, Guowei & Cheng, T.C.E. & Wang, Shouyang, 2011. "The maximum capture per unit cost location problem," International Journal of Production Economics, Elsevier, vol. 131(2), pages 568-574, June.
    25. John R. Hauser, 1988. "Note—Competitive Price and Positioning Strategies," Marketing Science, INFORMS, vol. 7(1), pages 76-91.
    26. R Aboolian & O Berman & D Krass, 2008. "Optimizing pricing and location decisions for competitive service facilities charging uniform price," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(11), pages 1506-1519, November.
    27. Ward Hanson & Kipp Martin, 1996. "Optimizing Multinomial Logit Profit Functions," Management Science, INFORMS, vol. 42(7), pages 992-1003, July.
    28. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Karray, Salma & Martín-Herrán, Guiomar & Zaccour, Georges, 2020. "Pricing of demand-related products: Can ignoring cross-category effect be a smart choice?," International Journal of Production Economics, Elsevier, vol. 223(C).
    2. Mayadunne, Sanjaya & Johar, Monica & Saydam, Cem, 2018. "Competitive store closing during an economic downturn," International Journal of Production Economics, Elsevier, vol. 199(C), pages 162-178.
    3. Mejía, Gonzalo & Aránguiz, Raúl & Espejo-Díaz, Julián Alberto & Granados-Rivera, Daniela & Mejía-Argueta, Christopher, 2023. "Can street markets be a sustainable strategy to mitigate food insecurity in emerging countries? Insights from a competitive facility location model," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    4. Cataldo, Alejandro & Ferrer, Juan–Carlos, 2017. "Optimal pricing and composition of multiple bundles: A two-step approach," European Journal of Operational Research, Elsevier, vol. 259(2), pages 766-777.
    5. Lin, Yun Hui & Tian, Qingyun, 2023. "Facility location and pricing problem: Discretized mill price and exact algorithms," European Journal of Operational Research, Elsevier, vol. 308(2), pages 568-580.
    6. Derya Celik Turkoglu & Mujde Erol Genevois, 2020. "A comparative survey of service facility location problems," Annals of Operations Research, Springer, vol. 292(1), pages 399-468, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Küçükaydin, Hande & Aras, Necati & Kuban AltInel, I., 2011. "Competitive facility location problem with attractiveness adjustment of the follower: A bilevel programming model and its solution," European Journal of Operational Research, Elsevier, vol. 208(3), pages 206-220, February.
    2. Vladimir Marianov & H. A. Eiselt, 2016. "On agglomeration in competitive location models," Annals of Operations Research, Springer, vol. 246(1), pages 31-55, November.
    3. Zhang, Yue & Liang, Liping & Liu, Emma & Chen, Chong & Atkins, Derek, 2016. "Patient choice analysis and demand prediction for a health care diagnostics company," European Journal of Operational Research, Elsevier, vol. 251(1), pages 198-205.
    4. Azad, Nader & Hassini, Elkafi, 2019. "Recovery strategies from major supply disruptions in single and multiple sourcing networks," European Journal of Operational Research, Elsevier, vol. 275(2), pages 481-501.
    5. Mayadunne, Sanjaya & Johar, Monica & Saydam, Cem, 2018. "Competitive store closing during an economic downturn," International Journal of Production Economics, Elsevier, vol. 199(C), pages 162-178.
    6. Teodora Dan & Patrice Marcotte, 2019. "Competitive Facility Location with Selfish Users and Queues," Operations Research, INFORMS, vol. 67(2), pages 479-497, March.
    7. Teodora Dan & Andrea Lodi & Patrice Marcotte, 2020. "Joint location and pricing within a user-optimized environment," EURO Journal on Computational Optimization, Springer;EURO - The Association of European Operational Research Societies, vol. 8(1), pages 61-84, March.
    8. Sedghi, Nafiseh & Shavandi, Hassan & Abouee-Mehrizi, Hossein, 2017. "Joint pricing and location decisions in a heterogeneous market," European Journal of Operational Research, Elsevier, vol. 261(1), pages 234-246.
    9. Ralf Krohn & Sven Müller & Knut Haase, 2021. "Preventive healthcare facility location planning with quality-conscious clients," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 43(1), pages 59-87, March.
    10. Abdullah Dasci & Gilbert Laporte, 2005. "A Continuous Model for Multistore Competitive Location," Operations Research, INFORMS, vol. 53(2), pages 263-280, April.
    11. Freire, Alexandre S. & Moreno, Eduardo & Yushimito, Wilfredo F., 2016. "A branch-and-bound algorithm for the maximum capture problem with random utilities," European Journal of Operational Research, Elsevier, vol. 252(1), pages 204-212.
    12. Xiang Li & Tianyu Zhang & Liang Wang & Hongguang Ma & Xiande Zhao, 2022. "A minimax regret model for the leader–follower facility location problem," Annals of Operations Research, Springer, vol. 309(2), pages 861-882, February.
    13. Dilek, Hande & Karaer, Özgen & Nadar, Emre, 2018. "Retail location competition under carbon penalty," European Journal of Operational Research, Elsevier, vol. 269(1), pages 146-158.
    14. Haase, Knut & Hoppe, Mirko, 2008. "Standortplanung unter Wettbewerb - Teil 1: Grundlagen," Discussion Papers 2/2008, Technische Universität Dresden, "Friedrich List" Faculty of Transport and Traffic Sciences, Institute of Transport and Economics.
    15. Ebrahim Teimoury & Mohammad Modarres & Morteza Neishaboori, 2020. "Cost-based differential pricing for a make-to-order production system in a competitive segmented market," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(4), pages 266-275, August.
    16. Diego Ruiz-Hernández & Javier Elizalde & David Delgado-Gómez, 2017. "Cournot–Stackelberg games in competitive delocation," Annals of Operations Research, Springer, vol. 256(1), pages 149-170, September.
    17. María García & Blas Pelegrín & Pascual Fernández, 2011. "Location strategy for a firm under competitive delivered prices," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 47(1), pages 1-23, August.
    18. Cornelia Schön & Pratibha Saini, 2018. "Market-Oriented Service Network Design When Demand is Sensitive to Congestion," Transportation Science, INFORMS, vol. 52(5), pages 1253-1275, October.
    19. Vladimir Marianov & H. A. Eiselt & Armin Lüer-Villagra, 2020. "The Follower Competitive Location Problem with Comparison-Shopping," Networks and Spatial Economics, Springer, vol. 20(2), pages 367-393, June.
    20. Maryam Radman & Kourosh Eshghi, 2018. "Designing a multi-service healthcare network based on the impact of patients’ flow among medical services," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 40(3), pages 637-678, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:159:y:2015:i:c:p:265-273. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.