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Surviving in a competitive spatial market: The threshold capture model

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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.

Suggested Citation

  • Daniel Serra & Charles Revelle & Ken Rosing, 1999. "Surviving in a competitive spatial market: The threshold capture model," Economics Working Papers 359, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:359
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    File URL: https://econ-papers.upf.edu/papers/359.pdf
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    1. 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.
    2. 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.
    3. 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.
    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, vol. 50(3), pages 280-297, February.
    5. 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.
    6. ReVelle, Charles, 1993. "Facility siting and integer-friendly programming," European Journal of Operational Research, Elsevier, vol. 65(2), pages 147-158, March.
    7. J R Current & J E Storbeck, 1988. "Capacitated Covering Models," Environment and Planning B, , vol. 15(2), pages 153-163, June.
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    Citations

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    Cited by:

    1. Martin Carree & Marcus Dejardin, 2007. "‘Entry Thresholds and Actual Entry and Exit in Local Markets’," Small Business Economics, Springer, vol. 29(1), pages 203-212, June.
    2. repec:spr:annopr:v:256:y:2017:i:1:d:10.1007_s10479-016-2288-z is not listed on IDEAS
    3. 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.
    4. Rosing, K. E. & ReVelle, C. S. & Schilling, D. A., 1999. "A gamma heuristic for the p-median problem," European Journal of Operational Research, Elsevier, vol. 117(3), pages 522-532, September.
    5. Papathanasiou, Jason & Manos, Basil D., 2007. "An approximation algorithm for the location of dairy enterprises under time constraints," European Journal of Operational Research, Elsevier, vol. 182(3), pages 1479-1487, November.
    6. 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.
    7. 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.
    8. repec:eee:ejores:v:267:y:2018:i:2:p:612-627 is not listed on IDEAS
    9. Benjamin Spaulding & Robert Cromley, 2007. "Integrating the maximum capture problem into a GIS framework," Journal of Geographical Systems, Springer, vol. 9(3), pages 267-288, September.
    10. Francisco Silva & Daniel Serra, 2007. "Incorporating Waiting Time in Competitive Location Models," Networks and Spatial Economics, Springer, vol. 7(1), pages 63-76, March.
    11. Robert Cromley & Dean Hanink, 2008. "Population growth and the development of a central place system," Journal of Geographical Systems, Springer, vol. 10(4), pages 383-405, December.

    More about this item

    Keywords

    Discrete facility location; threshold; competitive location;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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