A Continuous Model for Multistore Competitive Location

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 costdisadvantaged. 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.

Statistical properties of agent-based market area model

“…We have considered customers uniformly distributed along a straight line. Interestingly, such arrangement is typical for the restaurants distributed along a main road or highway [4]. We follow with definition of the measure of the spatial activity of the ith firm…”

Erratum to “A Continuous Model for Multistore Competitive Location”

“…Conditions (16), (20 ), and (22 ) are depicted in Figure 1, which replaces Figure 8 in Dasci and Laporte (2005). As the reader would notice, all of the nonlinear relationships proposed by the earlier analysis are replaced by linear ones.…”

“…We now restate the last three propositions presented in Dasci and Laporte (2005) (all proofs are also relegated to the online appendix):…”

“…I n Dasci and Laporte (2005), we present a model in a multistore competitive location environment. We develop the model by shifting the issue from competition on precise location decisions to competition over location density decisions.…”

“…To describe the error and its correction, we reconsider the leader's problem and its proposed solution given in Equations (18) and (19) of Dasci and Laporte (2005). The leader's problem is given as…”