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Surviving in a competitive spatial market: The threshold capture model

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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File URL: http://www.econ.upf.edu/docs/papers/downloads/359.pdf
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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
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. 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, vol. 50(3), pages 280-297, February.
  2. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
  3. J R Current & J E Storbeck, 1988. "Capacitated covering models," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 15(2), pages 153-163, March.
  4. Hasan Pirkul & David A. Schilling, 1991. "The Maximal Covering Location Problem with Capacities on Total Workload," Management Science, INFORMS, vol. 37(2), pages 233-248, February.
  5. ReVelle, Charles, 1993. "Facility siting and integer-friendly programming," European Journal of Operational Research, Elsevier, vol. 65(2), pages 147-158, March.
  6. Rosing, K. E. & ReVelle, C. S., 1997. "Heuristic concentration: Two stage solution construction," European Journal of Operational Research, Elsevier, vol. 97(1), pages 75-86, February.
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