Large-Scaled Chain Stores versus Small-Scaled Local Stores

In some local areas, we can occasionally observe a competition between a large-scaled chain store and a small-scaled local independent store. A large-scaled chain store usually attracts consumers by appealing its width and depth of products variety. A local independent store with limited assortments of products competes with the chain store by concentrating upon some specific kinds of products and by offering lower prices for them than the chain store. This is possible for the local store partly because of lower labor costs and for various other reasons. The present study deals with the pricing competition in a duopoly between a chain store and a local store. For the purpose of expressing the difference in product assortments between the two stores, a chain store is assumed to deal in two kinds of products, P 1 and P 2 , while a local store is assumed to sell only P 1 . Moreover, we assume all the consumers purchase P 1 at a chain store or a local store by referring to their prices, and P 2 at A . A Nash and a Stackelberg equilibrium are examined to show that the local store can possibly survive the competition with the chain store. The socially optimal welfare is also investigated to reveal it can be realized in a monopoly.