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On competition in a Stackelberg location-design model with deterministic supplier choice

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  • Eligius M. T. Hendrix

    (Universidad de Málaga
    Wageningen University)

Abstract

We study a market situation where two firms maximize market capture by deciding on the location in the plane and investing in a competing quality against investment cost. Clients choose one of the suppliers; i.e. deterministic supplier choice. To study this situation, a game theoretic model is formulated. We show that for the modelled situation no Nash equilibrium exists. However, a so-called Stackelberg equilibrium, where one of the firms (the leader) is aware of what the other (follower) is going to do, exists. The questions under study is whether co-location is a natural phenomenon in this case and in which situation one of the firms is not entering the market. The study requires a multi-level thinking where the decisions on location follow from the known quality investment behavior and the actions of the leader take the decisions of the follower into account.

Suggested Citation

  • Eligius M. T. Hendrix, 2016. "On competition in a Stackelberg location-design model with deterministic supplier choice," Annals of Operations Research, Springer, vol. 246(1), pages 19-30, November.
    • Handle: RePEc:spr:annopr:v:246:y:2016:i:1:d:10.1007_s10479-015-1793-9
    DOI: 10.1007/s10479-015-1793-9
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    References listed on IDEAS

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