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Surviving in a competitive spatial market: The threshold capture model

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  • Daniel Serra

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  • Charles Revelle
  • Ken Rosing

Abstract

Most facility location decision models ignore the fact that for a facility to survive it needs a minimum demand level to cover costs. In this paper we present a decision model for a firm that wishes to enter a spatial market where there are several competitors already located. This market is such that for each outlet there is a demand threshold level that has to be achieved in order to survive. The firm wishes to know where to locate its outlets so as to maximize its market share taking into account the threshold level. It may happen that due to this new entrance, some competitors will not be able to meet the threshold and therefore will disappear. A formulation is presented together with a heuristic solution method and computational experience.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 359.

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Date of creation: Feb 1999
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Handle: RePEc:upf:upfgen:359

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Discrete facility location; threshold; competitive location;

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References

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  1. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers, Stanford - Studies in Industry Economics 151, Stanford - Studies in Industry Economics.
  2. Hasan Pirkul & David A. Schilling, 1991. "The Maximal Covering Location Problem with Capacities on Total Workload," Management Science, INFORMS, INFORMS, vol. 37(2), pages 233-248, February.
  3. Rosing, K. E. & ReVelle, C. S., 1997. "Heuristic concentration: Two stage solution construction," European Journal of Operational Research, Elsevier, Elsevier, vol. 97(1), pages 75-86, February.
  4. Cornuejols, G. & Sridharan, R. & Thizy, J. M., 1991. "A comparison of heuristics and relaxations for the capacitated plant location problem," European Journal of Operational Research, Elsevier, Elsevier, vol. 50(3), pages 280-297, February.
  5. J R Current & J E Storbeck, 1988. "Capacitated covering models," Environment and Planning B: Planning and Design, Pion Ltd, London, Pion Ltd, London, vol. 15(2), pages 153-163, March.
  6. ReVelle, Charles, 1993. "Facility siting and integer-friendly programming," European Journal of Operational Research, Elsevier, Elsevier, vol. 65(2), pages 147-158, March.
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Cited by:
  1. Francisco Silva & Daniel Serra, 2007. "Incorporating Waiting Time in Competitive Location Models," Networks and Spatial Economics, Springer, Springer, vol. 7(1), pages 63-76, March.
  2. Marcus Dejardin & Martin Carree, 2011. "Firm Entry and Exit in Local Markets: Market Pull and Unemployment Push," Working Papers 1114, University of Namur, Department of Economics.
  3. Carree,Martin & Dejardin,Marcus, 2004. "Entry thresholds and actual entry and exit in local markets," Research Memorandum 048, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Rosa Colomé & Helena Ramalhinho-Lourenço & Daniel Serra, 2003. "A new chance-constrained maximum capture location problem," Economics Working Papers 661, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Benjamin Spaulding & Robert Cromley, 2007. "Integrating the maximum capture problem into a GIS framework," Journal of Geographical Systems, Springer, Springer, vol. 9(3), pages 267-288, September.
  6. Francisco Silva & Daniel Serra, 2008. "Incorporating waiting time in competitive location models: Formulations and heuristics," Economics Working Papers 1091, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Robert Cromley & Dean Hanink, 2008. "Population growth and the development of a central place system," Journal of Geographical Systems, Springer, Springer, vol. 10(4), pages 383-405, December.
  8. Rosing, K. E. & ReVelle, C. S. & Schilling, D. A., 1999. "A gamma heuristic for the p-median problem," European Journal of Operational Research, Elsevier, Elsevier, vol. 117(3), pages 522-532, September.

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