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A Continuous Model for Multistore Competitive Location

Author

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  • Abdullah Dasci

    (Belk College of Business Administration, University of North Carolina at Charlotte, 9201 University City Boulevard, Charlotte, North Carolina 28223-0001)

  • Gilbert Laporte

    (HEC Montréal, 3000 Chemin de la Côte-Sainte-Catherine, Montréal, Quebec, Canada H3T 2A7)

Abstract

This paper presents a simple model to determine the location strategies of two retail firms planning to open a number of stores in a geographical market. Firms try to maximize their profit under a leader-follower type competition in which the number of stores is made endogenous by the introduction of fixed costs. A novel methodology is developed in which firms’ strategies are defined in terms of their location densities. This methodology leads to a model that is solvable analytically, and to several results on competitive location strategies. First, it is shown that if the follower decides to enter a market, he enters at least as strongly as the leader. Second, the leader can effectively deter entry even if she is severely cost-disadvantaged. However, in some cases the leader is better off by allowing the follower to enter the market. Third, the leader may also let the follower enter the market in some situations where she has a cost advantage. It is also shown that in situations where both firms enter the market, their location strategies are quite insensitive to model parameters.

Suggested Citation

  • Abdullah Dasci & Gilbert Laporte, 2005. "A Continuous Model for Multistore Competitive Location," Operations Research, INFORMS, vol. 53(2), pages 263-280, April.
  • Handle: RePEc:inm:oropre:v:53:y:2005:i:2:p:263-280
    DOI: 10.1287/opre.1040.0175
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    References listed on IDEAS

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    10. Kočišová, J. & Horváth, D. & Brutovský, B., 2009. "The efficiency of individual optimization in the conditions of competitive growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(17), pages 3585-3592.
    11. J. Cole Smith & Churlzu Lim & Aydın Alptekinoğlu, 2009. "New product introduction against a predator: A bilevel mixed‐integer programming approach," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(8), pages 714-729, December.
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    18. Han, Shuihua & Jia, Xinyun & Chen, Xinming & Gupta, Shivam & Kumar, Ajay & Lin, Zhibin, 2022. "Search well and be wise: A machine learning approach to search for a profitable location," Journal of Business Research, Elsevier, vol. 144(C), pages 416-427.
    19. H. A. Eiselt & Vladimir Marianov, 2020. "Stability of utility functions and apportionment rules in location models," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 28(3), pages 772-792, October.
    20. 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.
    21. Dasci, Abdullah & Huang, Rongbing, 2017. "A continuous approximation method for dynamic pricing problem under costly price modifications," Omega, Elsevier, vol. 72(C), pages 38-49.
    22. Iida, Tetsuya & Matsubayashi, Nobuo, 2011. "Strategic multi-store opening under financial constraint," European Journal of Operational Research, Elsevier, vol. 210(2), pages 379-389, April.
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    24. Takaki, Masaya & Matsubayashi, Nobuo, 2013. "Sequential multi-store location in a duopoly," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 491-506.
    25. 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.

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